Increased demand from oil importers for the American currency and a weak opening in the domestic stock market also put pressure on the rupee.
Sensex rally was driven by Bajaj FinServ, Reliance Industries, Bajaj Finance, ICICI Bank, HDFC and Axis Bank. NSE Nifty climbed 326.50 points to end at 15,245.60.
Rupee retreats from 3-week high against dollar ahead of Budget.
Dollar gained against major currencies overseas.
Recovering from early losses, the rupee on Friday ended marginally higher at 64.81 against the US dollar.
The rupee has recovered to trade at 63 level after hitting its life-time low of 68.85 towards August-end.
Gold prices on Monday drifted by Rs 105 to trade at a three-week low of Rs 27,225 per ten grams.
The rupee on Tuesday tumbled by 32 paise to close at 64.17 on fresh dollar demand from importers.
Dollar's weakness against other currencies in the global market made the local unit stronger.
India's foreign exchange reserves declined by a whopping $4.343 billion to $367.646 billion.
BofA-ML revised its end-2015 rupee-dollar forecast to 60 from 64 earlier.
The Reserve Bank of India (RBI) will have to take far more pro-active steps to rebuild forex reserves, because if the status quo remains, rupee could touch 75 per US dollar by the end of 2014, Bank of America Merrill Lynch said in a report.
RBI governor Raghuram Rajan, on Monday, said the current level of the rupee is "pretty reasonable" and any attempt to devalue it may lead to a surge in inflationary pressures and "offset any benefits"
The Nifty slumped by 67.85 points
The domestic unit had recovered to 68.65 in early trade on Friday as against Thursday's closing of 68.72.
The rupee is expected to weaken further through June and end the month at Rs 58.50 against the dollar.
The RBI fixed the reference rate for the dollar at 63.8061 and for the euro at 69.6571.
The NSE Nifty after regaining the 10,600-mark hit a high of 10,604.90 on the back of widespread gains, and finally concluded 72.25 points or 0.69 per cent higher at 10,584.75.
Robust foreign capital inflows into upbeat domestic equity markets on the back of better macro fundamentals helped the rupee to gain
Silver also traded lower by Rs 400 at Rs 37,600 per kg.
The rupee had last ended at 67.22 per dollar on March 16, 2016.
The US dollar bought 99.40 yen in Asian trade, compared with 99.21 in North American trade late on Monday.
Forex dealers said besides dollar weakening against the euro in overseas markets, higher opening in the equity market and increased foreign funds inflows mainly supported the rupee.
The greenback's strength against other Asian currencies and lacklustre local equity markets made the rupee depreciate.
The rupee settled at 61.71. In straight three sessions, the currency has shot up 51 paise or by 0.82 per cent.
00 hours. The overall investors' wealth, measured in terms of valuation of all listed stocks, was down by nearly Rs 6 lakh crore in early morning trade, from nearly Rs 111.44 lakh crore at the end of Tuesday's trade.
The rupee recovered marginally at close against the dollar.
Extending losses for the fourth straight session, Indian rupee on Monday declined by ten paise to log over 13-month closing low of 63.67.
Weakness of dollar in the overseas market also boosted the domestic currency, a forex dealer said.
Hero MotoCorp, Bajaj Auto, M&M and Tata Motors were the major winners.
The rupee on Tuesday recovered from its two-week low to end steady at 66.60 against the American currency, inching up by a paisa on the back of mild dollar selling.
Forex dealers said month-end dollar demand from oil importers and dollar's gain against other currencies overseas, also put pressure on the rupee.
Forex dealers said Euro's weakness against the dollar overseas also put pressure on the rupee.
The rupee resumed lower at 63.65 per dollar as against previous closing of 63.58 at the Interbank Foreign Exchange (Forex) market.
The rupee continued to rule firm against the dollar for the second consecutive day.
At the Interbank Foreign Exchange market, the local unit commenced strong at 54.40, which was also to be the day's high, as against previous close of 54.57.
Weakness of dollar in the global markets and foreign capital outflows also affected the rupee sentiment.
In forward market, premium for dollar declined in view of mild receivings from exporters.
The dollar index was up by 0.04 per cent against a basket of six major global rivals.
The dollar index was down by about 0.35 per cent against a basket of six major global units as yen strengthened against it and euro moved in a narrow range on uncertainty about whether Cyprus will be able to secure a bailout.
