Mumbai: The rupee on Wednesday settled at one-year low of 46.16/17 against the US currency, down by 5 paise over last close, as sustained dollar demand from importers and some banks erased its early gains.

However, the third straight day of fall in rupee was checked to some extent by a strong rally in local equities amid capital inflows, dealers said.

 At the Interbank Foreign Exchange (Forex) market, the domestic unit opened higher at 46.05/06 a dollar from last close of 46.11/12 and immediately touched a high of 45.98 in line with smart rise in local stocks.

However, it was not able to maintain the surge concluded the day at 46.16/17. Last time, it had ended at 46.35/36 a dollar on September 15, 2010.

Dealers attributed the fall in rupee to late dollar demand from importers and some banks on expectations of a decline in dollar in overseas markets.

Alpari Financial Services (India) CEO Pramit Brahmbhatt said, "The rupee turned weak for the day after early rise on late dollar demand despite dollar trading weak against the major currencies amid strong Indian equity markets where the key indices ended up by over 1 per cent."

"Strength still persists in the US dollar. Thus we can expect rupee to touch 46.20 levels soon," India Forex Advisors CEO Abhishek Goenka said.

The dollar index, a measure of six major currencies, was down by nearly 0.3 per cent.

Meanwhile, the Bombay Stock Exchange benchmark Sensex on Wednesday closed up by 202.19 points or 1.20 per cent. FIIs pumped in USD 123.30 million yesterday, as per the Sebi data. New York crude oil was trading below USD 87 a barrel in European market on Wednesday.

The rupee premium for the forward dollar improved further on sustained paying pressure from banks and corporates.

The benchmark six-month forward dollar premium payable in February settled higher at 71-73 paise from Tuesday's close of 66-1/2-68-1/2 paise and far-forward contracts maturing in August also finished firm at 129-131 paise from 124-127 paise previously.

The RBI fixed the reference rate for the dollar at Rs 46.0218 and the euro at Rs 64.7758.

The rupee strengthened further against the pound sterling to end at Rs 73.86/88 from yesterday's close of Rs 74.15/17 while bounced back to Rs 64.90/92 per euro from Rs 65.17/19 previously.

It, however, fell back against the Japanese yen to Rs 59.79/81 per 100 yen from last close of Rs 59.69/71.