A stronger US dollar in global markets ahead of US Fed's meeting starting tomorrow also weighed on the domestic currency, dealers said. At the Interbank Foreign Exchange market, the rupee commenced weak at 62.50 a dollar from previous close of 62.29.

A sudden gust of dollar demand from importers, mainly oil refiners, after global crude oil prices fell to near USD 62 a barrel weighed on the domestic unit which dropped to a low of 62.95 in day trade.

Later, the rupee settled at 62.94, showing a fall of 65 paise the biggest fall in last four months or 1.04 percent. Previously, it had settled at 63.10 on January 27, 2014.

The Indian benchmark BSE Sensex, which was down by over 245 points at initial stages, recovered and closed slightly lower by 31.12 points or 0.11 percent. Foreign portfolio investors sold shares worth USD 128.75 million yesterday, as per Sebi data.

Pramit Brahmbhatt, Veracity Group CEO said, "Indian Rupee slipped down by over 1 percent for the day; taking cues from the dollar demand from oil companies and almost made a 11 months low.

"The trading range for the spot rupee is expected to be within 62.50 to 63.50," he added. The dollar index was remarkably higher by 0.35 percent against its basket of six major global rivals.

Meanwhile, Wholesale Price Index (WPI) based inflation dropped to zero in November from 1.77 percent in October and 7.52 percent in November 2013, giving a space for the apex bank to cut the key interest rates in near future.

In forward market, premia continued its downslide on sustained receipts by exporters.

The benchmark six-month premium payable in May softened to 201.5-203.5 paise from 203.5-205.5 paise yesterday and forward contracts maturing in November 2015 also declined to 404-406 paise from 407-409 paise.

The Reserve Bank of India fixed the reference rate for dollar at 62.6529 and for the Euro at 78.0154.

The rupee dropped further against the pound to 98.61 from 97.87 on Sunday and also dipped to 53.05 per 100 Japanese yen from 52.69. However, it fell back to 78.23 per euro from last close of 77.56.

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