The Indian rupee slipped below the 66-mark against the US dollar on Tuesday, showing a growing demand for the US currency from importers and lack of foreign investors' interest in a weak economy.
There were also concerns over the effect the Food Security Bill, passed by the lower house of Parliament on Monday, will have on the current account deficit (CAD). The bill entails expenditure of nearly $20 billion.
The partially-convertible rupee slumped to a new record low of 66.25 against the dollar at the Interbank Foreign Exchange market in Mumbai, surpassing the previous record low of 65.56 recorded on August 22.
The rupee later recovered to the 65-level, but closed at 66.24 - a depreciation of 2.36 per cent from Monday's closing of 64.72 against a dollar.
The free fall in rupee also led to heavy selling in the equities markets.
The 30-scrip Sensex of the Bombay Stock Exchange (BSE) closed at 17,968.08 points - down 590.05 points, or 3.18 per cent, from the previous day's close of 18,558.13 points.
The Sensex touched a high of 18,460.72 points and a low of 17,921.82 points intra-day.
The wider 50-scrip Nifty of the National Stock Exchange closed the day's trade down 189.05 points, or 3.45 per cent, at 5,287.45 points.
Heavy selling by foreign funds too dampened sentiments, even as the government admitted that there were domestic factors behind the currency crisis.
Earlier in the day, Finance Minister P. Chidambaram said the rupee had overshot its true level and that the phenomenon of depreciating currency value is being faced by other emerging markets also.
The rupee was the worst performing currency among other emerging Asian currencies which also experienced record depreciation.
The Indonesian Rupiah, Malaysian Ringgit, Thai Baht and Peso of the Philippines fell to multi-year lows.
With inputs from IANS