FIIs bought stocks worth just Rs 83.16 crore as per provisional data.
Forex dealers said dollar selling by exporters and a higher opening in the equity market also supported the rupee.
It had strengthened by 45 paise on Tuesday to close at one-month high of 55.07 against the dollar, tracking a jump in local shares.
Forex dealers said a higher opening in the domestic stock market and euro's gain against the American currency as concerns over eurozone and the US eased, supported the rupee.
The rupee on Thursday lost 25 paise to 55.72 against the US dollar in early trade at the InterbankForeign Exchange market as the American currency gained strength against other currencies overseas.
In addition, dollar's weakness against other currencies overseas also supported the rupee.
In New York, dollar erased most of its losses on last Friday after the euro briefly jumped following more comments from European Central Bank President Mario Draghi about policy options.
In the last four days, rupee has lost 104 paise against the dollar.
The domestic currency has fallen past the 56-level against the dollar after June 29.
Tracking weak stock markets, the rupee today plunged by 65 paise to 55.97, its lowest closing in over three weeks, against dollar amid fresh Eurozone worries and month-end US currency demand from oil firms.
Dealers said apart from gains in euro and the Asian currencies against the American currency overseas, higher opening in the domestic equity market and selling of dollars by exporters and some banks supported the rupee.
Sensex ended at 17,279 up 94 points or 0.55%
The rupee had ended 79 paise higher to close at 55.15 against the US currency in the previous session on Friday.
In New York, the dollar index climbed to its highest level in about two years on Wednesday.
Weak trends in local stocks with Sensex dropping by 129 points also weighed on rupee but some capital inflows limited its decline to some extent, forex dealers said.
Forex dealers said a higher opening in the stock market also helped the local unit to recover after four sessions of losses.
The dollar strengthened against other currencies as well in the overseas market.
FIIs today pumped in Rs 591 crore in stocks, provisional data from stock exchanges showed.
The rupee resumed higher at the Interbank Foreign Exchange market but fell to a intra-day low of 57.10.
The currency hit a record low of 57.32 on June 22 and has so far shed 7 per cent value against the dollar in 2012, making it worst performing currency in Asia.
The rupee on Tuesday rose by 11 paise to 56.90 against the US dollar in early trade at the Interbank Foreign Exchange market as the American currency weakened against euro and other currencies overseas.
On Tuesday, the rupee had closed three paise down at 55.96 against the dollar amid foreign fund outflows and demand of the US currency from importers.
The rupee on Monday rose by 5 paise to trade at 55.35 against the US dollar in early trade at the Interbank Foreign Exchange as the American currency weakened against euro overseas.
The domestic currency had ended 12 paise lower at Rs 55.80 against the dollar in Thursday's trade on fresh dollar demand from banks and importers amid a rise in May inflation.
The rupee had ended higher by 12 paise at 55.68 against the dollar in the previous session on fag-end selling of dollars by banks and exporters amid euro gaining strength overseas.
On Thursday, the local unit had ended higher by 42 paise at 54.94, its highest closing since May 18 against the dollar on sustained FII inflows.
The rupee commenced higher at 55.14 a dollar from the overnight close of 55.36 at the Interbank Foreign Exchange market, and immediately touched a low of 55.30 on some dollar demand from oil importers as crude oil hovered around the $85 per barrel.
The rupee had lost 11 paise to close at 55.65 against the Greenback on Monday due to late dollar demand from importers.
Dealers said Euro's gains against the dollar in overseas markets and step taken by the RBI to stablise the rupee mainly influenced the trading sentiment.
Sentiments were weighed down as the US dollar turned higher against its major counterparts.
At the Interbank Foreign Exchange (Forex) market, the domestic unit opened lower at 56.02 as against its previous close of 55.64 on dollar buying by importers, mainly oil refiners, to meet their month-end requirements.
This marks a turnaround after rupee's 158-paise plunge in the last three sessions.
The Indian rupee recovered by four paise to 54.99 after touching all-time low of 55.07 against the American currency in the late morning trade due to mild selling of dollars by banks following following measures taken by RBI to curb the local currency's fall.
Forex dealers said fresh dollar demand from banks and particularly, month-end demand from oil importers despite weakness of the dollar in the overseas market pulled down the rupee.
Fresh demand for dollars from banks and importers in view of firm dollar in the overseas market mainly affected the rupee value against the US unit, a forex dealer said.
A higher opening in domestic stock market supported the rupee.
Selling of dollars by exporters helped the Indian currency appreciate.
A higher opening in the domestic equity market influenced the rupee uptrend
However, firm equity markets capped the rupee losses.
The rupee plunged 20 paise to close at an all-time low of 78.13 against the US dollar on Monday, as a lacklustre trend in domestic equities and stronger greenback overseas weighed on investor sentiments. Forex traders said weak Asian currencies and persistent foreign capital outflows were the other major factors that dragged the local unit down. At the interbank foreign exchange market, the local currency opened at 78.20 and witnessed an intra-day high of 78.02 and a low of 78.29 against the US dollar.
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