Forex dealers said rupee weakened as investors fear the rating downgrade could hike international dollar lending rates for Indian corporates.
The rupee resumed higher at 55.10 per dollar compared to last week's close of 55.42 at the Interbank Foreign Exchange (Forex) Market as banks and corporates sold dollars in view of fresh capital inflows coupled with firm opening in stocks.
However, the rupee failed to maintain its opening gains and dropped to 55.82 before settling at 55.74 after stocks declined. This represented a loss of 32 paise or 0.58 per cent from its last close.
In the stock markets, the benchmark BSE Sensex resumed higher at 16,804.89 but fell after S&P's warning came. It closed a 16,668.01, a loss of 50.86 points of 0.30 per cent. FIIs bought stocks worth Rs 130 crore today.
"Today's rupee movement was a knee-jerk reaction to S&P report. Otherwise, the domestic currency opened on a positive note. Going ahead as the market digests the report, rupee will recoup," said N S Venkatesh, Head of Treasury, IDBI Bank.
Hemal Doshi, Chief Currency Strategist, Geojit Comtrade said the impact of S&P report would stay for few trading sessions in the forex market while rupee could trade in the 55-56.30 range in the short-term.
Last week, the domestic currency on a weekly basis had managed to log its first gain in 10 weeks, breaking the trend of nine consecutive weekly losses.
Globally, the euro climbed the most in six months against the dollar after Spain requested a bailout loan. The 17-nation currency rose to a two-week high but pared some gains as data showed the Italian economy contracted for a third quarter. (MORE)
