Sustained dollar demand from importers and some weakness in local equities also weighed on the rupee, a forex dealer said.
Crude prices logged a nine-month high after militants closed in on Iraq's capital Baghdad, fuelling fears over supplies from the crude producer.
US benchmark, West Texas Intermediate, advanced 73 cents to USD 107.26 after surging USD 2.13 in New York to reach its highest level since September.
At the Interbank Foreign Exchange (Forex) market, the domestic unit resumed the week better at 59.10 a dollar from last weekend's close of 59.17 and immediately touched a high of 58.98 on firm local equities.
Later, it moved in a narrow range till Thursday on alternate bouts of demand and supply before succumbing to heavy dollar demand from importers on Friday to register a low of 59.80. It finished the week at 59.77, revealing a fall of 60 paise, or 1.01 per cent.
It has plunged by 125 paise, or 2.14 per cent.
On Friday, it lost 52 paise -- its biggest drop since January 24, 2014 -- when it had dropped by 73 paise.
The benchmark S&P BSE Sensex closed down by 168.29 points, or 0.66 per cent, while FIIs injected USD 640.68 million in the first four days of the week, as per Sebi data.
"Suspected intervention by the central bank was seen in the afternoon and demand for the greenback from importers put pressure on rupee," said Kiran Kumar Kavikondala, Director & CEO, WealthRays Securities.
Pramit Brahmbhatt, Veracity Group CEO said, "Rupee depreciated during the week taking cues from local equities which gave up almost all the gains posted during the week.
"In spite of FIIs buying shares worth Rs 1,557 crore till Thursday, indices closed on a weak note. On Monday, the trading range for the Spot USD/INR pair is expected to be within 59.30 to 60.30."
Meanwhile, raising hopes of recovery, the Index of Industrial Production (IIP) grew at 3.4 per cent in April after contracting for two months in a row and May retail inflation (CPI) fell to three-month low at 8.28 per cent compared with 8.59 per cent in April.
Forward dollar premiums dropped on fresh receipts by exporters.
The benchmark six-month forward dollar premium payable in November dipped to 228-230 paise from last weekend's level of 243.5-245.5 paise and far-forward contracts maturing in May 2015 also tumbled to 467.5-469.5 paise from 494-496 paise.
The RBI fixed the reference rate for the USD at 59.4783 and the euro at 80.7120 from 59.1970 and 80.8345 previously.
The rupee continued its downslide and closed at 101.31 against the pound sterling from 99.54 last weekend and also remained weak against the euro to 80.87 from 80.73.
It, however, fell back sharply against the Japanese currency to end at 58.59 per 100 Japanese yen from 57.81 preceding weekend's close.