The rupee slid on Monday, dragged down by a cash dollar shortage that traders said had been triggered by the Indian central bank's sustained mop-up of the US currency in recent sessions.
The Reserve Bank of India (RBI) resumed its rupee-selling interventions last month, after a three-month gap, to pull the rupee back from a six-year peak of 43.115/135 struck in the wake of China's revaluation of the yuan.
The intervention lifted India's foreign exchange reserves by $3.06 billion in the week to July 29 to $140.6 billion as the RBI absorbed a bulk of the foreign capital flowing into local stocks.
The rupee closed at 43.5475/5525 per dollar, 0.15 percent weaker than its previous close of 43.4825/4850.
"The cash dollar shortage and the sharp fall in local stocks weighed on the rupee," said a dealer at a foreign bank.
Spot dollars usually trade at a premium to cash dollars, but they were quoted at a discount on Monday, meaning there was a shortage of cash dollars relative to demand.
The Mumbai stock index ended 1.91 percent lower at 7,606.17 points on Monday after running up more than a quarter since early May as investors worried about high share valuations and the threat of higher oil prices to corporate earnings.
Surging foreign fund investment of nearly $7 billion in India's booming stock market since the start of 2005 has been putting upward pressure on the rupee, which some analysts say is overvalued by about 9 percent. To see a related story, please double-click on.
In European trade, the yen was at 111.62 yen per dollar, up 0.2 percent on the day, after hitting a week low of 112.62 yen. The dollar was down slightly against the euro at $1.2379, but up from a two-month low around $1.24 hit last week.
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