The rupee skidded beyond 51 against the dollar to its lowest in 32 months on Friday, and was set for its third weekly fall, weighed down by rising oil import payments and slowing exports and foreign inflows.
Worsening debt crisis in Europe, which could further roil the global economy, added to the gloom, traders said.
The partially convertible rupee fell as far as 51.3700, down 0.9 percent on the day, and within sight of its 52.20 record low reached on March 3, 2009.
"The combination of dollar demand given the worries on Europe and pressure to meet commitments for oil companies is hitting the rupee," said a senior foreign exchange dealer at a large private-sector bank.
India imports more than three-fourth of the oil it consumers and refiners are the biggest buyers of dollars in the market.
"If the rupee breaches the support level of 51.35 then it could move to 51.50," he said.
By 11:54 a.m. (0624 GMT), the rupee was trading at 51.34/35, compared with its previous close of 50.9050/9150.
At the day's low, it has lost 14.6 percent from its 2011 high in July, making it the worst performer among major Asian currencies this year.
Falling shares and sluggish foreign portfolio investments have also weighed on the rupee. The benchmark BSE index was trading down more than 1 percent, taking losses in the year to date to almost a fifth.
The one-month offshore non-deliverable forward contracts were quoted at 51.65, indicating a short-term bearish trend for the onshore spot rate.
The one-month onshore forward premium was at 24.75 points from 29 points on Thursday, the three-month was at 57.50 points from 72.25 and the one-year was at 164.75 points from 189.75.
In the currency futures market , the most traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange were all at 51.39. The total volume was at $1.99 billion.
Traders were divided over the likelihood of intervention by the Reserve Bank of India (RBI) to shore up the currency.
"Even if the RBI comes it is unlikely they will be able to stop the rupee's decline," said a forex dealer with a foreign bank.
"The global sentiment is pro-dollar and domestic macro-economic factors like widening trade deficit, weak equities are also rupee negative."
Subir Gokarn, a deputy governor at the central bank said on Thursday, said the RBI would be careful about using foreign exchange reserves aggressively to protect depreciation of the rupee.
The RBI had sold $845 million in September, after following a hands-off approach for nine months, data released last Friday showed.
The U.S. dollar held firm in Asia on Friday, while the euro was surprisingly resilient with European banks seen repatriating funds back home as signs of funding stress grew amid a deepening euro zone debt crisis.
The euro was at $1.3479 from $1.3485 at the end of rupee trade on Thursday. The index of the dollar index was at 78.215 points from 78.166 points previously.