The Indian rupee fell 27 paise to 61.50 against the US dollar on heavy month-end demand from importers for the US currency, which strengthened overseas after the US Federal Reserve indicated it may taper its stimulus programme earlier than expected.
The rupee's decline was limited by a rally in local stocks, which took the key Sensex index to a new closing high, and continued foreign fund inflows.
The rupee opened lower at 61.37 a dollar on the Interbank Foreign Exchange Market from the previous close of 61.23 and touched the day's high of 61.29. Later, it dropped to 61.56 before settling at 61.50, a fall of 27 paise or 0.44 per cent.
In the past two days, the rupee had risen 29 paise to the highest level in more than two weeks.
It was the second month of gains for the rupee, which rose 1.8 per cent in October after appreciating 4.7 per cent in September. The local currency has recovered since dropping to all-time low of 68.85 on August 28.
Month-end dollar buying from importers, mainly oil refiners, weighed on the currency on Thursday.
"The rupee was seen weakening after the Fed announced that they will continue with the current pace of QE (quantitative easing) but gave a slight hint that they may taper in the month of December. This fuelled gains in the dollar and made the rupee depreciate," said Abhishek Goenka, CEO of India Forex Advisors. "The Fed Chairman said that they want to see some more data before making changes to the current QE program."
The dollar index was up 0.26 per cent against major global rivals after the Federal Reserve on Wednesday held its monetary policy steady, in line with expectations.
Meanwhile, the BSE Sensex rose 130.55 points, or 0.62 per cent, to a record close of 21,164.52. Overseas investors were net buyers of Indian stocks for the 19th straight session, picking up Rs 1,016.77 crore of shares on Wednesday, according to provisional data with the stock exchanges.
with inputs from PTI