At the Interbank Foreign Exchange (Forex) market, the local currency resumed lower at 60.23 a dollar from previous close of 60.13. It then declined further to one-week lows of 60.3850 on initial dollar demand from importers, mainly oil refiners.
Lacklustre trade on the local equity markets also weighed on the rupee. The Indian benchmark S&P BSE Sensex today closed down by 55.16 points, or 0.22 per cent. FIIs had infused Rs 284.61 crore yesterday, as per provisional data.
The rupee later bounced back to settle at the day's high of 60.12 on late dollar selling by exporters.
Anindya Banerjee, currency analyst, Kotak Securities, said: "The Indian rupee weakened at the open due to uptick in global petroleum prices. However, hedging demand from ITes sector, pushed it back up towards 60.17/18 levels on spot. PSU bids were absent in today's session and there was little inter-market effect from a largely ranged equity market."
The dollar index was up by 0.03 per cent against six major global rivals.
Militants launched a dawn raid today on a key Iraqi oil refinery they have been trying to take for days but were repelled by security forces. US benchmark West Texas Intermediate rose 17 cents to USD 106.20 a barrel while Brent crude eased 65 cents to USD 113.81 in afternoon trade.
Pramit Brahmbhatt, Veracity Group CEO said: "Traders are being cautious as growing tensions in Iraq has dented the confidence of the investors. The trading range for the Spot USD/INR pair is expected to be within 59.80 to 60.60."
"So far, it has been a quiet week for the rupee which was seen trading in the range of 60.00-60.35 levels. Global tensions, strong US data, consistent flows in local markets, flat US dollar and choppy stock markets have all been responsible for keeping the rupee in a tight range," said Abhishek Goenka, Founder and CEO, India Forex Advisors.
Meanwhile, the premium for forward dollar declined further on sustained receipts by exporters.
The benchmark six-month premium payable in November dipped to 218-220 paise from 223-225 paise previously.
Far-forward contracts maturing in May, 2015 also finished lower at 468.5-463.5 paise from 470.5-472.5 paise.
The Reserve Bank of India fixed the reference rate for dollar at 60.2785 and for the euro at 82.0475.
The rupee remained firm against the pound to 102.01 from yesterday's close of 102.19 and improved further to 58.99 per 100 Japanese yen from 59.07.
However, it recovered to 81.81 per euro from 81.93.