Mumbai: Washing out early gains, rupee on Tuesday depreciated by 14 paise to close at 59.66 on defence-related dollar demand and losses in local stock market.
A firm dollar overseas and concerns over fresh capital outflows weighed on the rupee, a forex dealer said.
At the Interbank Foreign Exchange (Forex) market, the domestic unit commenced slightly better at 59.50 a dollar from previous close of 59.52. It later rallied further to a high of 59.17 on initial dollar selling by exporters.
However, rupee met with strong resistance and fell back sharply to a low of 59.7150 before settling at 59.66, showing a fall of 14 paise or 0.24 per cent. Yesterday, it had fallen by 13 paise or 0.22 per cent, snapping a three-day upmove after closing at historic low of 60.72 on June 26.
"Rupee continued its volatile move today as well. The market expectation of government and finance ministry to announce some positive news on the FDI issue boosted the sentiments in earlier sessions. But later the gains were erased as dollar demand rose in local markets," said Abhishek Goenka, Founder & CEO, India Forex Advisors.
Treasury officials at private banks said the rise in dollar demand today was on account of "defence-related" payments.
Meanwhile, the Indian benchmark S&P BSE Sensex today dipped by 113.57 points or 0.58 per cent.
FIIs sold shares worth Rs 1.48 crore yesterday, as per provisional data with stock exchanges.
The dollar index was up by 0.21 per cent against a basket of six major global rivals. Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said: "Dollar index traded strong against the other major currencies which forced rupee to surrender and closed weak for the second consecutive day. The major resistance for spot USDINR is set at the 59.88. If it is breached then the next level to watch will be between 60.20- 60.30."
Next: Sensex retreats from 1-mth high, down 114pts on profit-booking

Sensex retreats from 1-mth high, down 114pts on profit-booking
Mumbai: The Sensex on Tuesday retreated from one-month high levels to 19,463.82, down 113.57 points, as overseas investors booked profits in bluechips including Infosys, RIL and HDFC Bank after three straight days of gains.
Signs of fresh offloading of positions by foreign funds, weak trading in European markets and some fag-end depreciation in rupee also affected investor sentiment, said traders.
Shares from realty, PSU and refinery segments were at the receiving end while consumer durable and pharma counters attracted good buying support.
The Bombay Stock Exchange 30-share gauge remained in negative for the most of the day before settling down by 113.57 points or 0.58 pct at 19,463.82.
In last three-day, S&P BSE Sensex had spurted by 1,025.18 points or 5.53 per cent. The wide-based 50-issue CNX Nifty of the NSE dropped by 41.30 points, or 0.70 per cent, to end at 5,857.55. SX40 index, the flagship index of MCX-SX, also ended 54.34 points, or 0.47 per cent lower at 11,566.47.
Fall in heavyweights like Infosys, RIL, HDFC Bank, HDFC, L&T, ONGC, SBI, Tata Motors, Jindal Steel and Maruti mainly put pressure on Sensex. Auto stocks were weak after posting tepid monthly sales numbers. Infosys was under seller's radar on fears the IT major will scale down FY14 sales outlook.
Banking shares also saw some selling amid 26 private and pubic sector entities having applied to RBI for grant of bank licences, heightening chances of competitive intensity.
Kishor P Ostwal, CMD, CNI Research Ltd. said: "Market was rising more on short covering than buying...some cooling off has taken place. As regards bank licences, I think the story will taper of in days to come as NBFC are trailing at high valuations compared to existing banks."
The rupee was trading weak at 59.64 levels compared to yesterday's closing of 59.52 a dollar.
Globally, Asian stocks endex mixed while European markets were trading lower in their early trade as investors awaited reports on UK construction activity and US factory orders.