The rupee had gained by 50 paise or 0.75 per cent in two weeks.
Snapping its nearly 2-week winning spree against the American currency, the rupee on Tuesday dropped by 25 paise to end at 66.46 on fresh demand for the dollar from banks and importers amidst sharp fall in equity.
The rupee resumed marginally lower at 66.25 per dollar as against yesterday's closing level of 66.21 at the Interbank Foreign Exchange (Forex) market and hovered in a wide range of 66.07 and 66.52 before finishing at 66.46, showing a loss of 25 paise or 0.38 per cent.
The rupee had gained by 50 paise or 0.75 per cent in two weeks.
The domestic currency firmed up to 3-month high at 66.07 per dollar today during the intra-day trade on initial selling of dollars by banks and exporters in view of sustained foreign capital inflows.
However, it fell to 66.52 on fag-end dollar demand from banks and importers due to fall in equity market in spite of 0.25 per cent rate cut by Reserve Bank.
The dollar index was up by 0.18 per cent as against a basket of six currencies in the late afternoon trade.
However, the yen was stronger against its rival currencies early today, jumping against the dollar, with yet another decline in the Tokyo stocks prompting buying in the Japanese currency.
Amid deteriorating corporate sentiment in Japan and oil price weakness, the benchmark Nikkei Stock Average NIK, -2.42% lost ground, boosting demand for safe-haven assets such as the yen.
Oil prices tumbled further in Asia on dwindling hopes that key producers will reach an agreement to freeze output when they meet this month to discuss a global supply glut.
Meanwhile, the benchmark Sensex fell sharply by 516.06 points, or 2.03 per cent, to close at 24,883.59.
Pramit Brahmbhatt of Veracity Financial Services said, "Today the rupee opened on a negative note, but soon after opening we saw the rupee appreciating and in this instance the rupee tested higher level of 66/USD. The announcement of RBI monetary policy (where RBI announced a rate cut) and the horrible fall in domestic equity market led USD to appreciate."
"Our benchmark index Nifty closed with a horrible loss of 156 points. Thus the rupee depreciated 25 paisa and closed at 66.46/USD compared to previous day," he said.
Trading range for the spot USD/INR pair is expected to be within 66.00 to 66.80/USD.
In forward market, premium for dollar moved down further on sustained receivings from exporters.
The benchmark six-month premium for September declined to 205-207 paise from 206.5-208 paise yesterday and far forward March 2017 contract also moved down to 401-403 paise from 403.5-404.5 paise.
The RBI fixed the reference rate for the dollar at 66.3248 and euro at 75.5240.
In cross-currency trades, the rupee ended steady against the pound sterling to finish at 94.36 while fell against the euro to 75.48 from 75.26 per euro.
The rupee also dropped against the yen to 60.08 per 100 yens from 59.28 previously.
