The rupee fell for the first time in six days, dropping 21 paise to 61.25 against the dollar today on demand from importers for the US currency and as local equities declined.
Increased capital inflows and a weaker dollar overseas limited the losses, a forex dealer said.
The government today said the trade deficit narrowed to USD 9.21 billion in November, the second-lowest level in the current financial year, even as export growth slowed to a five-month low.
At the interbank foreign exchange market, the rupee opened bearish at 61.23 a dollar from yesterday close of 61.04 and dropped to the day's low of 61.42 as local stocks fell.
It rebounded in line with a recovery in shares and foreign fund inflows to settle at 61.25, still registering a fall of 21 paise or 0.34 per cent.
"Today's trade deficit data provided some support to the rupee but the gains were quite short-lived. Negative closing of the local stock markets was seen putting pressure on rupee," said Abhishek Goenka, CEO of India Forex Advisors.
The 30-share benchmark Sensex closed 84 points lower today, the second day of losses.
Foreign institutional investors infused USD 551.69 million on December 9, as per SEBI data. They picked up shares worth Rs 395.68 crore yesterday, according to provisional data with stock exchanges.
With a week to go for the next monetary policy review, the Reserve Bank today said it will focus on controlling inflation and on improving liquidity by rolling back measures taken to check the rupee's volatility.
The dollar index was trading nearly stable with downward bias ahead of next week's Federal Reserve policy decision.
