The rupee fell on Wednesday as dollar demand from oil importers for month-end payments offset a rise in the BSE Sensex, although traders said likely dollar sales by the Reserve Bank of India pulled it off the day's low.
Oil is the country's largest import item and refiners are the biggest buyers of dollars in the local market.
The partially convertible rupee ended at 50.09/10 to the dollar, little changed from Tuesday's close of 50.07/08, but stronger from the day's trough of 50.25, where traders suspect the RBI to have sold dollars.
"There is strong bidding interest for the dollar around 50 levels and oil buying has been around through the day," said Ashtosh Raina, head of foreign exchange trading at HDFC Bank.
He forecasts 48.60 as the next resistance level for the rupee it breaks past 49.80 against the dollar.
Reluctance to carry big positions ahead of the US Federal Reserve's rate decision due late Wednesday evening and a local market holiday on Thursday weighed on the rupee, traders said.
Lingering fears about the prospect of a Greek debt default also kept the mood cautious.
The US Federal Reserve opened a two-day meeting on Tuesday that is expected to end with a signal that interest rates will be held near zero into 2014. A statement is due at 1730 GMT on Wednesday.
A sharp rebound in the rupee from its record low of 54.30 on December 15 also prompted some profit taking, traders said.
The rupee has gained 6% so far in January after declining 16% in 2011.
Traders attribute the rupee's rise to RBI intervention and steps taken by it to cut speculation and boost dollar flows, and were concerned it may fall once the central bank moves back into the background.
The RBI chief on Wednesday said intervention by the central bank in the foreign exchange market will depend on the rupee's exchange rate and capital flows.
One-month offshore non-deliverable forward contracts were at 50.51, indicating some weakness in the short term in the onshore spot rate.
In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all ended around 50.15 on total volumes of $4.23 billion.
