The Indian rupee ended slightly lower on Tuesday, coming off a modest early high as concerns about firm prices of oil, the country's key import, and a strengthening dollar kept the market subdued.
Portfolio investment inflows, which had supported the Indian currency in recent sessions, also appeared to thin as the stock market's rally paused.
The rupee closed at 45.8600/8700 per dollar, below Monday's close of 45.8500/8550. It had dealt at a high of 45.8400 in the morning.
The local unit had appreciated by 0.55 percent in the last three sessions as portfolio investments picked up in anticipation of a robust October earnings season.
"By and large, there is little reason to sell dollars," said a trader at a state-run bank.
"Except for the possibility of central bank intervention to control inflation, there is no reason for the rupee to see a sustained rise."
The Indian unit has weakened over the past six months.
The improvement in the outlook for the US economy and the dollar, domestic inflationary pressures and a deterioration in the balance of payments caused by a widening trade deficit and slowing capital inflows are weighing on the rupee.
The Indian unit is widely estimated to be expensive in inflation-adjusted, trade-weighted terms. J.P. Morgan says the rupee is more than three percent overvalued.
The Indian unit was weaker against the dollar in the forward market as well. The six-month dollar was quoted at a premium of 2.28 percent, higher than Monday's premium of 2.17 percent.
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