Snapping its two-day winning spree against the American currency, the rupee on Wednesday dropped 10 paise to end at 66.59 on renewed demand for the dollar from banks and importers amid higher greenback overseas.
Persistent foreign capital outflows also affected the market sentiment, a forex dealer said.
The domestic currency on Wednesday resumed lower at 66.52 as against Tuesday's closing level of 66.49 at the Interbank Foreign Exchange market and dropped further to 66.67 per dollar before ending at 66.59, showing a loss of 10 paise or 0.15 per cent.
The rupee had gained 27 paise, or 0.40 per cent, in the previous two days.
The domestic currency moved in a range of 66.46 and 66.67 per dollar during the day.
The dollar index was higher by 0.26 per cent against a basket of six currencies in the late afternoon trade.
In the overseas market, the dollar was slightly higher against the yen and the euro, as investors awaited key events later this week such as the US jobs data.
Although investors have already increased their bets that the US Federal Reserve will start raising rates in the middle of this month, the pace of dollar purchases has slowed after a downbeat US manufacturing report hinted at gradual US rate increases next year.
Oil prices rose in Asia on Wednesday, three days before an OPEC meeting in which the cartel is expected to maintain high output levels despite a global supply glut.
US benchmark West Texas Intermediate for delivery in January was up 29 cents to $41.94 and Brent crude for January was trading 18 cents higher at 44.79 a barrel.
Meanwhile, the benchmark Sensex moved down by 51.56 points or 0.20 per cent to end at 26,117.85.