The rupee surrendered its strong early gains and ended weaker by 10 paise at 64.97 against the US currency, cutting short its three-day upmove on bouts of dollar buying by banks and exporters.
A solid dollar rebound, supported by easing trade war fears and a goodish pick-up in the US Treasury bond yields predominantly kept forex market undertone nervous and prompted the fag-end reversal.
The home currency touched a fresh one-month high of 64.73 during early trade.
Some trading caution ahead of the fiscal deficit data release tomorrow also weighed on the rupee front.
Most Asian currencies appreciated on Monday against the backdrop of abating trade war fears following reports that Beijing and Washington have already been negotiating behind the scenes on trade, while White House advisor Peter Navarro said on Monday that he was hopeful the two countries could work together.
Bonds prices, in the meantime, staged a powerful rally induced by a surprise cut in the government's borrowing programme for the fiscal year starting April.
The government yesterday announced to borrow Rs 2.88 lakh crore in the April-September period of 2018-19, lower than Rs 3.72 lakh crore it had borrowed in the first half of the current fiscal, and introduce bonds linked to CPI or retail inflation.
The benchmark 10-year bond yield crashed to 7.33 per cent from 7.62 per cent.
The rupee opened on a stronger note at 64.76 against Monday's close of 64.87 at the inter-bank foreign exchange here on steady dollar unwinding and well supported by bullish local equities.
It strengthened further to hit a high of 64.73 briefly - the level not seen since February 23.
However, the upbeat momentum was stalled during the mid-afternoon trade, pressured by the month-end corporate demand for the greenback from corporates.
Moreover, currency traders avoided taking huge positions ahead of the long weekend.
After retracing the 65-mark towards the fag-end trade, the Indian unit finally settled at 64.97, showing a loss of 10 paise, or 0.15 per cent.
The rupee had gained 34 paise against the US currency in the previous three trading sessions.
The RBI, meanwhile, fixed the reference rate for the dollar at 64.7973 and for the euro at 80.7634.
On the global energy front, crude prices traded firm, supported by concerns that tensions in the Middle East could lead to supply disruptions, although further rises expected in US crude output loomed over markets.
Brent crude futures were trading weak at USD 69.77 a barrel in early Asian trading.
Meanwhile, after a stellar relief rally on Monday, domestic bourses gained further ground aided largely by bargain hunting in select front-line shares amid short-covering ahead of expiry tomorrow.
The flagship BSE-Sensex jumped 108 points to close at 33,174.39, while the Nifty rose nearly 54 points to 10,184.15.
Asian stocks too rose broadly on hopes that a trade war between the US and China can be avoided.
The dollar index, which measures the greenback's value against a basket of six major currencies, was up at 89.16 in early trade.
In the cross currency trade, the Indian unit recovered against the pound sterling to end at 91.67 from 92.25 earlier. It also maintained its strong upbeat momentum against the Japanese yen to finish at 61.44 per yen from 61.72.
The local unit, however, slipped further against the euro to settle at 80.56 as compared to 80.50 yesterday.
Elsewhere, the common currency euro retreated after hitting new five-week high in early trade as fresh selling re-emerged on the back of stronger dollar and weaker than expected EU Business Climate data.
The British pound also fell back on bouts of profit-taking after recent sharp upmove.
In forward market today, premium for dollar declined due to fresh receiving from exporters.
The benchmark six-month forward premium payable in August moved down to 111-113 paise from 117.50-119.50 paise and the fag-forward February 2019 contract also edged lower to 233-235 paise from 236-238 paise previously.
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