In early trade, the domestic currency rallied to a high of 60.59, a level not seen since August 12, 2013, when it touched intra-day high of 60.45.
Forex dealers said initial selling of US dollar by exporters pushed the Indian rupee up.
At the Interbank Foreign Exchange (Forex) market, the rupee resumed better at 60.82 a dollar from the last close of 60.85.
However, it fell sharply on weakness in stocks and dollar demand from importers. It finally concluded the day at 60.94, a fall of nine paise from the last close.
In the past five sessions, the local currency had flared up by 119 paise or 1.92 per cent.
Strong USD overseas amid fresh dollar demand from importers and renewed capital outflows also weighed on the rupee, a forex dealer said.
Meanwhile, benchmark BSE Sensex dipped by 108.41 points, snapping five days of gains.
Foreign institutional investors (FIIs) sold shares worth USD 611.66 million yesterday, as per Sebi data.
"Consistent FII flows have certainly been helping the rupee to gain during the last couple of weeks.... Report released today showed an improvement in the overall trade deficit but exports shrank for the first time in eight months. So we can say that this data was mixed," said Abhishek Goenka, Founder and CEO, India Forex Advisors.
The dollar index was up by 0.22 per cent against a bakset of six major global rivals.
Meanwhile, forward dollar premium edged up on fresh stray paying pressure from banks and corporates.
The benchmark six-month premium payable in August inched up to 248-250 paise from 247.5-249.5 paise yesterday.
Far forward contracts maturing in February 2015 also rose to 484.5-486.5 paise from 484-486 paise.
The RBI fixed the reference rate for dollar at 60.6995 and for the euro at 84.1590.
The rupee improved further slightly to 101.22 against the pound from 101.29 previously. It also remained firm to end at 84.37 per euro from 84.40.
It, however, fell back to 59.02 per 100 Japanese yen from 58.88.