The rupee recovered from its over two-year low of 66.89 in late morning deals, but was still down by 17 paise to 66.74 on persistent bouts of month-end dollar demand from importers and banks.
Earlier, the domestic currency opened lower by 66.66 as against yesterday's closing level of 66.57 at the Interbank Foreign Exchange (Forex) market.
It depreciated further to hit over two-year low to 66.89 (the rupee was at 67.08 on September 2, 2013), before bouts of dollar selling from banks helped to cap its losses, it was quoting 66.74 at 1030 hrs.
The rupee was hovering in a range of 66.65 and 66.89 in morning trade.
Overseas, the dollar was almost flat against the basket currencies in early thin Asian trade, with overnight US markets shut for the Thanksgiving Day holiday.
Meanwhile, the benchmark BSE Sensex trading higher by 138.03 points, or 0.53 per cent, to 26,096.66 at 1050 hrs.
In the overseas market, the dollar traded mixed in the
afternoon trade against the yen in a range-bound trading session today, with many traders unwilling to expose themselves to extra risk ahead of monetary policy meeting in Japan.
The Federal Reserve concludes its two-day policy meeting on Wednesday, but even then caution could prevail as investors will shift their attention to the Bank of Japan's policy meeting outcome Thursday. Although the Fed is widely expected to stand pat on rates, expectations remain high for the BOJ to take easing steps.
Pramit Brahmbhatt of Veracity Financial Services said, "The rupee continued to take cues from domestic equity market, as the rupee opened on a positive note compared to close of previous day. In domestic equity market, the Nifty gained 17 points. So, this optimism in domestic equity market helped the rupee to appreciate. Thus the rupee appreciated by 8 paise at 66.44/USD."
In forward market, the premium for dollar dropped further on sustained receivings from exporters.
The benchmark six-month premium for September fell to 184-186 paise from 188-190 paise yesterday and far-forward March 2017 contract also dropped to 375-377 paise from 379-381 paise.
Meanwhile, the benchmark Sensex ended higher by 56.82 points or 0.22 per cent to 26,064.12.
