The State Bank of India sold dollars reportedly amounting to $50 million between 42.76 and 42.78 levels.

Dealers expect the rupee to quote lower in the 42.75 to 42.85 band against the dollar on Thursday. (All markets are closed on Wednesday on account of Ambedkar Jayanti). "Today's, weakness in the spot rupee was largely on account of inter-bank interest for dollars, but this may prove infectious and affect corporate sentiments. Thursday could may well decide the rupee's future movement," Mecklai Financial Service's vice-president Ravi Vasantraj said.

The AIADMK statement that withdrawal of support to BJP government is inevitable made the marketsjittery. A later day report on a wire agency that Jayalalitha will do so either on Wednesday or Thursday compounded the negative sentiment further. Dealers said though most of the news was discounted, the markets were nervous about the BJP-led coalition government's ability to weather the political storm.

Opening the day at 42.69/72, the rupee went to its low of Rs 42.78. Dollar sales by the State Bank helped it recover to gain to 42.70 levels before closing at 42.64/76. Cash/spot closed at 0.75/1.75 paise (0.75/1.50 paise), cash/tom at 0.50/1.50 paise (0/0.25 paise) with tom/spot at 0.25/0.50 paise (0.75/1.25 paise).

"Trades might have been inter-bank today, but it is only a matter of time before it becomes corporate-interest driven. Premiums may not have moved up much, but that could because of buy/sell swaps by state-run banks," Harding at IndusInd Bank said.

April premiums closed at 9/10 paise (8/9 paise) with May at 32/33 paise (31/33 paise). In the far terms, December premiums closed at 224/226paise (223/225 paise) with January at 254/255 paise (253/255 paise).