World stocks and currency markets reacted vehemently following a sudden flare-up of geo-political tensions after North Korea tested a hydrogen bomb on Sunday, prompting the US to warn of a "massive" military response if it or its allies were threatened.
The Indian rupee plunged to hit an intra-day low of 64.18 against the dollar in knee-jerk reaction but managed to pull back magnificently towards the fag-end.
The greenback, however, struggled to gain ground against its major rivals as North Korea headlines lead the way in the absence of any other major catalysts.
A combination of domestic factors like growth constraints in the midst of lack of revival in investment climate as well as heavy offloading in portfolios by foreign investors and global traders predominantly weighed on the currency market, forex dealers said.
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Country's growth unexpectedly crumbled to a three-year low of 5.7 per cent during April-June spooked by cash clamp down late last year and also lingering impact of the GST launch.
On the equity front, domestic bourses reacted sharply in line with global peers on sentiment impact, breaking their three-day spectacular upsurge in the face latest developments after North Korea conducted another nuclear weapon test.
In the meantime, country's foreign exchange reserves swelled by USD 1.148 billion to a new lifetime high of USD 394.55 billion for the week ended August 25 on the back of a healthy rise in core currency assets.
Foreign portfolio investors were buyers in the Indian debt market for the seventh month in a row in August, taking their total investment to USD 20 billion so far this year.
FPIs turned sellers in both cash and futures markets. In the cash market, they were sellers at USD 1.8 billion and in futures, they were sellers at USD 636 million, Morgan Stanley said in a research note.
But, the initial euphoria was short-lived as currency market retreated sharply in tandem with local equities.
The home currency drifted sharply to hit an intra-day low of 64.18 on sentiment impact despite broad dollar's weakness before staging a smart rebound to close at 64.05, showing a nominal loss of 3 paise, or 0.05 per cent.
In two-day, the rupee has depreciated by 15 paise after scaling fresh 3-week high on last Monday.
The dollar index, which measures the greenback's value against a basket of six major currencies, was down at 92.54.
In cross-currency trades, the rupee declined further against the pound sterling to settle at 82.93 from 82.84 per pound and also drifted against the Japanese yen to conclude at 58.39 per 100 yens from 58.12.
It, however, rebounded marginally against the euro to end at 76.26 from 76.29 last Friday.
In forward market today, premium for dollar declined due to fresh receivings from exporters.
On the International energy front, crude prices fell on Monday after a powerful North Korean nuclear test triggered a shift away from crude markets to assets perceived to be safer, such as gold.
Brent crude futures, the international benchmark for oil prices, were down 68 cents, or 1.3 percent, at USD 52.07 a barrel in early Asian trade.