Rupee's decline, amid capital outflows and data showing slowing economic growth, was restricted by a rise in local equities, a forex dealer said. At the interbank foreign exchange market, the local currency started weak at 66.15 to a dollar from the previous close of 65.70 and then climbed to a high of 65.68. Rupee then turned negative and dropped to a low of 66.30 before recovering some ground to end at 66, a fall of 30 paise or 0.46%. In previous two trading sessions, it had zoomed 310 paise or 4.51%.
"On account of US bank holiday, the volumes were quite thin and the rupee was seen trading in a very tight range," said Abhishek Goenka, CEO of India Forex Advisors. "Last week's dismal GDP numbers of India and strength in the US dollar index made the rupee open on a weaker note on Monday.
Foreign institutional investors withdrew a net R78.85 crore of shares last Friday, as per provisional data with the stock exchanges.
The dollar index, consisting of six major rivals, was up 0.10% ahead of data and central-bank policy this week.
India's GDP growth slipped to 4.4% in the April-June quarter, from 4.8% in January-March. The HSBC/Markit purchasing managers index for the country's manufacturing industry contracted for the first time in over four and a half years to stand at 48.5 in August, lower than 50.1 in July.
Bonds gain for third day; stable Rupee helps
Government bonds gained for a third straight session on Monday as the rupee remained largely stable after having hit a record low last week, but traders were wary of adding huge positions until clarity emerged on the direction of the currency.
Weak economic data is also raising hopes RBI may shift its focus back on growth after its cash tightening steps in mid-July.
Indian factory activity shrank for the first time in more than four years in August while April-June growth data after the close of markets on Friday showed the economy expanded at its slowest quarterly rate since the global financial crisis. The 10-year bond yield may trade in a 8.25% to 8.65% range, he added. The benchmark 10-year bond yield closed at 8.46% down 14 basis points.