The rupee Tuesday declined by 18 paise to 68.84 against the US currency in early trade, due to strong dollar demand from banks and importers amid persistent foreign fund outflows.
A strengthening dollar against major currencies overseas and weak domestic equity market weighed on the local unit, forex traders said.
However, softening crude oil prices restricted the rupee's fall, they added.
The rupee opened weak at 69.65 against the US dollar at the interbank forex market. It fell further to quote at 68.84, registering a decline of 18 paise from the previous close.
The domestic currency on Monday fell 24 paise to close at 68.66 against the US dollar.
Foreign institutional investors (FIIs) remained net sellers in the capital markets, pulling out Rs 401.99 crore Monday, while domestic institutional investors bought shares worth Rs 321.13 crore, as per provisional data.
After dropping over 253 points in the opening session, the 30-share Sensex pared some losses to trade 152.50 points, or 0.39 per cent, lower at 38,568.07 at 0930 hours. Similarly, the broader Nifty shed 49.25 points, or 0.43 per cent, to 11,509.35.
The dollar index, which gauges the greenback's strength against a basket of six currencies, rose by 0.03 per cent to 97.41.
Meanwhile, Brent crude futures, the global oil benchmark, declined 0.45 per cent to trade at USD 63.82 per barrel.
The 10-year government bond yield was at 6.58 per cent in the morning trade.