The drop was also limited by fresh capital inflows and firm local stocks. The rupee resumed at 60.06 a dollar from the previous close of 60.13 on the Interbank Foreign Exchange (Forex) market and reached a high of 60.00 as local stocks climbed and exporters sold dollars.
The rupee then dropped to a low of 60.59 amid renewed dollar demand from importers, a strong dollar overseas and late profit booking in stocks.
The rupee regained some ground to close at 60.22, a decline of 0.15 per cent. "Possibly, there was intervention from the Reserve Bank around the 60.58/59 level, which helped the rupee to recover," said Hemal Doshi, a currency strategist at Geojit Comtrade.
The benchmark S&P BSE Sensex, which added 229 points at mid-session, ended with a gain of 85 points, or 0.44 per cent.
The dollar index, consisting of six major global rivals, was up by 0.20 per cent after the European Central Bank and the Bank of England each indicated there were no plans to reduce stimulus immediately.
"The dollar rallied across the board yesterday after the dovish comments made by both the European Central Bank President Mario Draghi and new Bank of England Governor Mark Carney," said Pramit Brahmbhatt, CEO, Alpari Financial Services (India). "It extended its strength today also against other major currencies, forcing the rupee to depreciate."
On a weekly basis, the rupee extended its fall for the ninth straight time -- one of its longest losing streaks.
Forex reserves down
Dropping for the second straight week, India's foreign exchange reserves plummeted by a hefty $3.20 billion at $284.65 billion on a heavy decline in the currency assets, the Reserve Bank said today.
Forex reserves had declined by $2.82 billion to $287.85 billion in the previous reporting week. Foreign currency assets (FCAs), a major component of forex reserves, slipped by $3.15 billion at $255.28 billion for the week ended June 28, the RBI data showed.
FCAs, expressed in dollar terms, include the effect of appreciation or depreciation of the non-US currencies such as the euro, pound and yen, held in the reserves.
The gold reserves remained unchanged at $22.836 billion during the week under review. The special drawing rights were down by $30.8 million to $4.342 billion during the period, while India's reserve position with the IMF declined by $15.5 million to $2.189 billion, the data showed.