After a weak start at 56.40, the rupee dropped 42 paise to hit new low of 56.57 per dollar at 1323 hours -- minutes after it had touched the 56.55 level for the first time -- surpassing its previous record low of 56.52 set on May 31. The rupee has lost 75 paise in last three sessions.
The US Federal Reserve launched new economic stimulus measures yesterday to tackle weak jobs growth, and predicted a slower output expansion amid the continuing debt crisis in Europe, especially in some euro-zone nations.
Meanwhile, the BSE 30-scrip benchmark Sensex declined by 81.83 point or 0.48% to 16,814.80 as foreign funds continued to sell equities.
In New York, the euro turned weak against the dollar on concerns that Spain's troubled banks may need a bigger bailout and dollar got boost after moves by the US Federal Reserve to power the economy. The Fed has extended a bond-swapping programme by six months, aimed at pushing down longer-term borrowing costs and stimulating the world's biggest economy.
Forex traders said they were on watch for any potential intervention from the Reserve Bank to defend the rupee, as the renewed global risk aversion amid deep uncertainty about India's fiscal and economic outlook.
On Monday, RBI dampened the market sentiment by keeping interest rates unchanged the mid-quarterly monetary policy review. The same day global rating agency Fitch cut the country's outlook to "negative", becoming the second credit agency after Standard and Poor's to threaten India's investment grade rating.