The rupee on Friday lost 17 paise against the dollar due to renewed demand for the US currency from banks and importers.
At the Interbank Foreign Exchange (Forex) market, the domestic unit closed at 46.77/78 a dollar, down by 17 paise, over the previous close.
Dealers said fresh demand for the greenback from banks and importers weighed on the rupee despite a weak dollar overseas.
Concerns over the US growth after weak manufacturing data kept the dollar under pressure in London, as the European single currency eyed a test of the 1.30 level.
Crude oil hovered around $76 in volatile Asian trade on weak economic data which dampened hopes for a swift US rebound from recession.
The rupee premium for the forward dollar ended better on sustained paying pressure from banks and corporates.
The Reserve Bank of India fixed the reference rate for the dollar at Rs 46.80 and for the euro at Rs 60.37. In cross currency trade, the domestic unit dropped further against the pound sterling, the euro and the Japanese yen.
Ten-year bonds were little changed after sale of Rs 13,000 crore ($2.8 billion) of government bonds on Friday, which may leave investors with less money to buy fixed-income securities.
Yields held at their highest level in a week on concern the central bank will increase its benchmark interest rates for the second time this month to rein in inflation. Data published this week showed wholesale prices rose more than 10% for a fifth straight month in June. India sold bonds maturing in 2017, 2022 and 2027.
?Liquidity continues to be a concern,? said Anoop Verma, a fixed-income trader at Development Credit Bank. ?More interest rate increases are the in offing to curb inflation.?
The yield on the 7.80% note due May 2020 was little changed at 7.64%, according to the central bank?s trading system. The price was at Rs 101.09 per Rs 100 face amount. Yields have climbed eight basis points since the Reserve Bank of India raised borrowing costs for a third time this year on July 2. The reverse-repurchase rate is 4% and the repurchase rate is 5.5%.