Mumbai: The rupee on Wednesday lost 2 paise to close at two-and-a-half month low of 55.12 against the dollar amid strong demand for the US currency.
Dealers said firm local equities amid sustained capital inflows limited the rupee's fall. A firm dollar overseas dampened the rupee sentiment, they added.
At the Interbank Foreign Exchange (Forex) market, rupee commenced lower at 55.13 a dollar and immediately touched a high of 55.06.
It fell to a low of 55.37 in the late morning session due to dollar demand from importers, mainly oil refiners and rise in dollar index overseas.
However, mid-session dollar selling by exporters and a strong rally in equities helped rupee to recover major part of its lost ground to settle at 55.12, still down 2 paise from its last close.
The rupee had last settled at 53.43 on September 13, 2012.
Meanwhile, the BSE benchmark Sensex Wednesday rose by 131.06 points, or 0.72 percent, on hopes of further reforms in the Winter Session of Parliament, which begins Thursday.
The dollar index was up by 0.28 percent against a basket of six major currencies as attention shifted back toward whether and when Greece will get its next instalment of bailout funds.
"The weakness in the rupee was attributed to dollar demand as a safe haven following failure of European leaders to agree on Greece bailout," India Forex Advisors Founder and CEO Abhishek Goenka said.
Alpari Financial Services (India) CEO Pramit Brahmbhatt said, "The rupee rebounded from its nine week lows on active exporter and corporate selling at higher levels. A firmer equity markets which rebounded from its lows also supported the recovery in rupee."
Goenka added, "The rupee was seen touching over nine week low on account of declining Euro as nothing concrete was announced after the brainstorming session from the Euro group members.
"The weakness in Japanese yen further added to the strength of dollar index. Overall we still maintain a bearish view on rupee. Importers should go long on any dip coming in the market".
The premium for the forward dollar ended with small changed either side.
The benchmark six-month forward dollar premium payable in April eased to 142-144 paise from Tuesday's close of 143-145 paise while far-forward contracts maturing in October inched up to 283-1/2-285-1/2 from 283-285 paise.
The RBI has fixed the reference rate for the US dollar at 55.2025 and for euro at 70.4255.
The rupee softened further against the pound sterling to 87.77 from Tuesday's close of 87.75 and also moved down to 70.60 per euro from 70.56.
It, however, remained firm against the Japanese yen to 66.96 per 100 yen from overnight close of 67.73.