The rupee on Wednesday snapped its three-day string of gains to end at 55.42, down 35 paise against the US dollar on fresh demand of the American currency from importers, notwithstanding robust capital inflows in stocks.
At the Interbank Foreign Exchange (Forex) market, the domestic unit opened lower at 55.14 a dollar from previous close of 55.07.
However, it recovered immediately to a high of 54.95 on initial rise in local stock market and persistent dollar selling by exporters.
But with global stocks falling from their intra-day highs on reports of poor economic data from Germany and rating agency S&P revising its outlook on Greece to negative from stable, the dollar strengthened and rupee weakened.
Amid fresh dollar demand from importers, mainly oil refiners, rupee fell to a low of 55.43 before closing at 55.42, down 35 paise or 0.64 per cent over Tuesday's close.
The rupee had spurted by 77 paise or 1.38 per cent in previous three days.
The pressure on the domestic unit will continue as long as European woes continue to persist and today's poor data from Europe will prove to be bearish for the rupee, said Abhishek Goenka, Founder & CEO, India Forex Advisors.
Forex dealers said although FIIs pumped in over Rs 1,100 crore (Rs 11 billion) in stocks on Wednesday, the pressure on rupee intensified in the second half.
The dollar index was up by 0.06 per cent against a basket of currencies after European stock
Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said: "The early rise in Indian equities and positive tone of the global currencies during the session imparted some gains in rupee which was very short lived".
Meanwhile, after touching a fresh four-month high, the Indian stock market benchmark Sensex surrendered gains to close flat at 17,600.56 points on Wednesday. Brahmbhatt said: "the downward revision of GDP numbers from Citi and CLSA also weighed on the sentiment.
The dollar index rebounded from its lows after the ECB effect faded in the single currency which was unable to make advances beyond the 1.2450 levels".
Earlier in the day, American banking major Citi and global brokerage CLSA on Wednesday cut their India GDP growth estimates to 5.4 and 5.5 per cent respectively.
The premium for the forward dollar recovered on fresh paying pressure from banks and corporates.
The benchmark six-month forward dollar premium payable in January rose to 177-179 paise from Tuesday's close of 173-175 paise.
The premium for far-forward contracts maturing in July also firmed up to 321-323 paise from 316-318 paise.
The RBI fixed the reference rate for the US dollar at 55.1450 and for euro at 68.3135.
The rupee also turned negative against the pound sterling to 86.82 from overnight close of 86.18 and also moved down against the euro to 68.53 from 68.40.
It also dropped against the Japanese yen to 70.76 from last close of 70.24.