The rupee commenced remarkably higher at 55.18 a dollar at the Interbank Foreign Exchange (Forex) market from 55.42 previously and touched a high of 55.04 on early rise in domestic stocks and heavy capital inflows.
However, late weakness in stocks induced by a 1.8 per cent unexpected drop June industrial production and dollar demand from importers put pressure on rupee as it pared gains.
The local currency fell back to a low of 55.39, before recovering slightly to close at 55.27. This was still a rise of 0.27 per cent or 15 paise compared to yesterday's close.
Forex dealers said dollar selling by exporters amid a firm American currency in overseas market hit the rupee sentiment but over Rs 330 crore pumped in by FIIs in stocks provided support.
They added that with Moody's research arm today scaling down its forecast for the country's economic growth this fiscal to 5.5 per cent, the outlook for rupee becomes cloudy.
"Rupee opened on a higher note and was trading in a 5-10 paisa range for while. But, weakness in Euro and low IIP data weakened the domestic currency," said Hemal Doshi, Currency Strategist, Geojit Comtrade.
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The dollar index, a gauge of six global major rivals, was up by 0.31 per cent as weak data from the Eurozone deepened fears.
"The IIP for the month of June came at (-1.8 pc) against the expectation of 1 pc, which was seen drifting the rupee towards 55.30 plus levels. Euro was also seen coming down to 1.23 levels," said Abhishek Goenka, Founder & CEO, India Forex Advisors.
Meanwhile, the Indian stock market benchmark Sensex, which was up by over 100 points in the morning, ended down by about 40 points. (MORE)