After rising to one-week high levels, the rupee on Thursday washed out gains to end two paise lower at 59.67 against the dollar on fresh demand for the US currency from importers.
The rupee snapped a two-day up-move even as local stocks surged on US Federal Reserve Chairman Ben Bernanke's comments.
The rupee opened at 59.39 a dollar from the previous close of 59.65 in the Interbank Foreign Exchange market and improved to 59.32, a one-week high, as domestic stocks gained.
"The rupee was seen gaining taking cues from the speech by Ben Bernanke, where he said that the economy will still need the accommodative monetary policy for the foreseeable future," said Abhishek Goenka, founder & CEO, India Forex Advisors.
The rupee later dropped to 59.99 on heavy dollar demand from importers, mainly oil refiners, and some banks. Forex traders said some PSU banks were seen selling dollars as the rupee approached 60-level. The currency finally settled at 59.67, a fall of two paise compared to Wednesday's close.
Strong local equities, continued capital inflows and a weak dollar overseas also restricted the rupee's decline.
The benchmark S&P BSE Sensex on Thursday surged 2 per cent, tracking global stock markets, after the Bernanke's overnight comments on continuing monetary stimulus. Foreign institutional investors purchased a net Rs 638.26 crore of stocks, according to the BSE website.
RBI Governor D Subbarao on Thursday said in Indore the rupee's decline was due to global factors and that it would be difficult to estimate when the situation would improve.
The rupee sank to a record low of 61.21 on July 8 and recovered after the RBI and Sebi announced measures to curb volatility and speculation in the currency derivative market.
In the global markets, the dollar weakness intensified, with the currency extending already sharp losses against the yen after the Bank of Japan raised its assessment of the economy while cutting its growth and inflation outlooks.
Bernanke's assurance on keeping US interest rates low also weighed in on the currency. The dollar index was down 0.10 per cent against a basket of six major currencies.