Mumbai: The rupee surrendered initial gains on Thursday and fell for the first time in six days, dropping 12 paise to close at 63.50 against the dollar on fresh demand for the US currency from importers.
The decline was restricted by sustained capital inflows, a forex dealer said.
The rupee resumed higher at 63.20 a dollar from the previous close of 63.38 at the interbank foreign exchange market and improved to an over three-week high of 62.92 on initial firm domestic stocks and continued dollar sales by exporters.
Renewed dollar demand from importers weighed on the rupee and it fell back to a low of 63.97 before recovering some ground to end at 63.50, a fall of 12 paise or 0.19 per cent.
In the previous five sessions, the local currency had jumped 425 paise, or 6.28 per cent, amid optimism pegged on steps to rescue the battered financial markets announced by RBI Governor Raghuram Rajan, who took over on September 4.
The benchmark S&P BSE Sensex tumbled 215.57 points or 1.08 per cent ahead of data on industrial production and retail inflation.
"The markets should see a somewhat range-bound stable rupee until the Federal Open Market Committee meets next week to discuss whether it should scale down its bond buying program," said Raghu Kumar, co-founder of RKSV.
"As we have evidenced over the past month, there is a strong correlation between the equity markets and the rupee."
Foreign institutional investors continued their buying spree, with net share purchases amounting to Rs 930.54 crore today and Rs 586.50 crore yesterday, according to provisional data with the stock exchanges.
"The trading range for the spot USD-INR pair is expected to be within 63.00 to 64.50," said Pramit Brahmbhatt, CEO of Alpari Financial Services (India).
Next: Sensex drops 216 points before factory output, inflation data

Sensex drops 216 points before factory output, inflation data
Mumbai:  The benchmark S&P BSE Sensex on Thursday fell 216 points in step with a weakening rupee ahead of industrial production and retail inflation data, registering the first drop in the six sessions since Raghuram Rajan took over as RBI Governor.
Metals, banks, consumer durables and auto sector stocks declined as 23 of the 30 Sensex shares fell.
Infosys, Reliance Industries and ICICI Bank contributed the most points to the drop in the Sensex, while Tata Steel, BHEL and Hero MotoCorp were the biggest losers on the index.
While the index breached the 20,000 mark for the third day in a row, it failed to sustain those gains. The Sensex initially touched a high of 20,052.05 on the back of rising Asian stocks and later fell back to settle at 19,781.88, a fall of 215.57 points or 1.08 per cent.
In the previous five sessions, it added 1,762.79 points, or 9.67 per cent, amid optimism pegged on Rajan, who laid out a road map for his innings in the short term soon after taking over as Reserve Bank of India chief on September 4.
The 50-share CNX Nifty index on the NSE dipped 62.45 points, or 1.06 per cent, to 5,850.70. The SX40 on the MCX-SX ended at 11,734.34, down 104.25 points or 0.88 per cent.
"Market participants preferred to book some profits ahead of the July industrial production and August CPI," said Amar Ambani, head of research at India Infoline.
"The Fed policy meeting next week is also another important event." The US Federal Reserve is scheduled to meet on September 17-18 and may reveal further plans about its USD 85 billion monthly bond-buying programme.
FMCG giant ITC was in the limelight and firmed up 1.91 per cent. Second-line stocks continued to attract retail investors and outperformed the Sensex.
The BSE-Midcap index fell 0.04 per cent and the BSE-Smallcap rose 0.25 per cent. Foreign institutional investors bought shares worth a net Rs 586.50 crore yesterday, as per provisional data from the stock exchanges.
Barring Japan, which closed lower, Asian stock markets finished with gains on signs of economic recovery in China and receding fears of a US strike on Syria.
European stocks reversed initial gains as investors awaited data on euro-zone industrial production. Key indices in France, UK and Germany were lower.
In the domestic market, the biggest losers on the Sensex were Tata Steel (4.13 pc), BHEL (3.99 pc), Hero MotoCorp (3.72 pc), ONGC (3.27 pc) and Maruti Suzuki (3.03 pc).
Apart from ITC, the gainers were Tata Power 2.75 pc, Gail India 1.60 pc and NTPC 0.94 pc. Among the sectoral indices, S&P BSE-Metal dropped 2.53 pc, followed by S&P BSE-Bankex 1.86 pc, S&P BSE-CD 1.84 pc, S&P BSE-Auto 1.80 pc and S&P BSE-Oil&Gas 1.68 pc.

The market breadth turned negative as 1,189 stocks ended lower, 1,166 stocks finished higher and 148 ruled steady. Total turnover on the BSE rose to Rs 2,817.90 crore from Rs 2,402.35 crore on Wednesday.