After falling below 55-level in early trade, the rupee on Monday washed out early losses to close three paise up at 54.86, snapping a two-session string of losses, on late dollar selling by some exporters and custodian banks.
The rupee commenced lower below 55-mark at 55.03 and dropped to a nearly two-month intra-day low of 55.15 on continued dollar demand from importers.
It later bounced back to a high of 54.80, before closing marginally up by three paise or 0.05 per cent at 54.86.
In previous straight two trading sessions, it had plunged by 103 paise or 1.91 per cent.
Dealers attributed late recovery in the rupee value to heavy dollar selling by exporters and some banks at 55-level.
The Indian benchmark S&P Sensex, which was down by 158 points in early stage, recovered to closed down by nearly 41 points or 0.21 per cent.
FIIs sold up shares worth Rs 30 crore (Rs 300 million) on Monday as per provisional data from bourses.
The dollar index was up by 0.13 per cent against a basket of six major currencies.
"Technically speaking if rupee sustains over 55.30 levels on closing basis, we could see further weakness in rupee.
The point to be noted, that rupee has depreciated nearly 2 per cent in last two days, the pace of depreciation was immense clearly reflecting the overall trend of the pair.
The dollar index is also trading at its 6 months high, putting further pressure on rupee," said Abhishek Goenka, Founder and CEO, India Forex Advisors.
Meanwhile, raising hopes of a sovereign credit upgrade, global rating agency Moody's on Monday applauded Finance Minister P Chidambaram's Budget saying that it pursues realistic fiscal consolidation path and is 'credit positive'.