Sustained dollar sales by exporters and banks on behalf of their clients also boosted rupee sentiment even as the dollar index was marginally up in overseas markets, said traders.
The rupee had gained 14 paise to close at 52.87 on Tuesday on fresh dollar selling by exporters on the back of sluggish movements of the US currency overseas.
Despite a heavy battering, the rupee on Tuesday made a smart recovery to close at 63.25 after hitting a fresh low of 64.13 against the US dollar, helped by RBI's massive intervention.
The rupee had gained 49 paise yesterday to close at over 4-1/2-month high of 53.02 against the dollar on heavy selling of the American currency by exporters and some banks.
Dollar selling by exporters and banks also supported the rupee, forex dealers said.
The rupee had gained 5 paise to end at 55.62 against the dollar on selling of the American currency by exporters in Wednesday's session.
This is the first time since June 27 that the domestic currency has fallen below the 60 level.
The rupee had rose by a staggering 80 paise, its biggest single-day gain in last nine months, to close at 59.39 amid signs of strong fund inflows on Friday.
Fresh dollar selling by exporters on hopes of fall in the USD after downward revision to that country's first quarter GDP growth also helped rupee recover as hopes surfaced that the Fed may delay the plan to taper of monetary stimulus.
Forex dealers said continued capital inflows and euro's gains against the dollar overseas on hopes that the European Central Bank may take action soon to ease the continent's debt crisis, kept the rupee's sentiment firm.
The rupee on Friday again breached the 56-mark by losing 31 paise to 56.15 against the US dollar in early trade to hit a fresh one-week low, due to strong demand for the American currency from banks and importers.
The rupee fell to a record low of 59.9350 to the dollar, breaching past its all-time low of 58.98 on June 11.
Besides, dollar's weakness against some Asian currencies supported the local unit, forex dealers said.
Forex dealers said besides dollar's gains against euro in the overseas markets on worsening euro-zone debt crisis amid growing fears that Spain may need a full bailout, a weak opening in the stock market also put pressure on the local unit.
Traders will watch out for any Reserve Bank of India intervention to prevent the rupee from weakening further.
The rupee had lost 21 paise to end at new 10-month low of 56.38 against the dollar on Thursday on fag-end spurt in dollar demand after RBI Governor D Subbarao painted a dim macroeconomic picture.
Forex dealers said rupee was under pressure throughout the session as dollar gained against rivals on hopes that European Central Bank will cut its main interest rate to a record low in a bid to support the region's economic growth.
On a weekly basis, the rupee fell by 1.36 per cent or 75 paise as dollar demand outweighed supply and stocks fell.
Even as rupee fell below 56-level against dollar intra-day, Chief Economic Adviser in the Finance Ministry Raghuram Rajan said, there is no need to panic, and RBI takes decisions on whether to intervene in forex markets or not to stabilise the local currency.
This is rupee's lowest closing since 55.45 on November 27, 2012.
Forex dealers said weakness in local equities and a firm dollar overseas against other currencies also weighed on the rupee.
Indian stocks and the rupee have benefitted from dollar liquidity induced by the US Fed stimulus.
Fresh demand for the American unit from importers put pressure on the rupee.
The dollar index was up by 0.04 per cent against a basket of six major global rivals.
The US dollar index, which tracks the greenback against a basket of six major currencies, was 0.38 per cent lower at 95.41.
The rupee on Tuesday lost 11 paise to Rs 55.85 against the US dollar in early trade on the Interbank Foreign Exchange following dollar gains against other currencies overseas amid a weak trend in the equity market.
At Forex market, the domestic unit commenced lower at 53.95 a dollar from previous close of 53.81and moved in a restricted range of 53.88 and 54.06 before settling at 53.94, showing a fall of 13 paise, or 0.24 per cent.
The rupee had gained by 57 paise, or 1.04 per cent, in previous two days.
Month-end dollar demand from importers mainly affected the rupee value against the dollar, a forex dealer said.
The rupee commenced stable at its last closing level of 53.96 at the Interbank Foreign Exchange market.
Forex dealers said strength in euro against the US dollar overseas and increased capital inflows supported the rupee.
Due to weakness in domestic equities and strong dollar demand, rupee shed its month and a half high against follar.
Strengthening of euro against the dollar in overseas market and a higher opening in the equity market supported the rupee.
The dollar index was up by 0.04 per cent against a basket of six major global rivals.
With Indian stocks under pressure, the rupee tumbled to a low of 54.89 on emergence of dollar demand from importers and some banks on expectations of further rise in dollar overseas.
Forex dealers said continued capital inflows and a weak dollar overseas also supported the local currency.
The dollar index was down by 0.03 per cent against a basket of six major rivals as Euro rose against the dollar after the Cyprus reached bailout agreement.
The dollar index was down by 0.16 per cent against its six major global rivals.
Bearish domestic equities restricted the rupee rise.
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