The rupee gave up most of its losses to close down by 3 paise at 71.80 against the US currency on Thursday even as uncertainty over the US-China trade talks and recession fears kept investors on edge.
Losses in domestic equity markets and unabated foreign fund outflows hit the rupee sentiment, forex dealers said.
At the interbank foreign exchange, the rupee opened lower at 71.96 and fell further to the day's low of 72.09 against the US dollar after inverted US yields fuelled fears of a possible recession.
Positivity surrounding the US-China trade talks after China indicated that it may not immediately respond to recent US tariff hikes helped revive the sentiment.
Chinese currency yuan gained 0.20 per cent, cutting short its 10-day losing streak against the dollar.
The domestic currency touched a high of 71.70 during the session before settling at 71.80, down by 3 paise.
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The BSE Sensex ended 382.91 points, or 1.02 per cent, lower at 37,068.93, while the broader NSE Nifty shed 97.80 points, or 0.89 per cent, to finish at 10,948.30.
Foreign investors pulled out Rs 986 crore on a net basis from equities on Thursday, provisional exchange data showed.
"Rupee continues to take resistance around 72.20 zone, until it is trading below this the view will be bearish for dollar. However, further developments regarding US China trade war will keep Chinese yuan, Indian rupee and other emerging market currencies on edge," Rahul Gupta, Currency Research Head, Emkay Global Financial Services Limited, said.
Brent crude futures, the global oil benchmark, declined 0.08 per cent to USD 60.44 per barrel as recession fears gripped markets.
The dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.08 per cent to 98.29.
The 10-year government bond yield was up at 6.58 per cent.
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