The Indian rupee weakened on Friday tracking losses in the euro, and ahead of U.S. non-farm payrolls data due at 1230 GMT that is expected to reinforce a recovery in the world's largest economy and boost the dollar.
Choppy shares failed to provide any clarity on the direction of foreign fund flows, which have been a key driver for the rupee in recent years.
At 10:20 a.m. (0450 GMT), the partially convertible rupee was at 45.37/38 per dollar, 0.3 percent weaker than its close of 45.245/255 on Thursday, when it had dropped as low as 45.43, its weakest since Dec. 20.
"Euro is one factor which is weighing on the rupee. The dollar index is also higher, so I expect some buying initially and then we might see some selling by exporters," said Hari Chandramgathan, a senior forex dealer with Federal Bank .
The euro dropped to a four-month low versus the dollar on Friday ahead of the U.S. jobs data.
The index of the dollar against six major currencies was up 0.2 percent at 80.951 points.
"I expect the volatility to remain ahead of the non-farm payroll data. Broadly a 45.25-45.55 range should hold today and the dollar index and equities would be watched for direction," said Vikas Chittiprolu, a senior forex dealer with state-run Andhra Bank .
Indian shares <.BSESN> seesawed on mixed Asian markets and sentiment was subdued on expectations for more rate hikes by the central bank after a sharp rise in food and fuel price inflation on Thursday.
Foreign funds have purchased shares worth $249 million in the first three trading sessions in 2011. The rupee had gained 4.1 percent in 2010 on record foreign equity inflows of $29.3 billion.
India's food price index rose 18.32 percent in the 12 months to Dec. 25, its highest in more than a year, data on Thursday showed. The fuel price index climbed 11.63 percent.
The Reserve Bank of India is expected to raise interest rates by atleast 25 basis points on Jan. 25, when it reviews policy, a Reuters poll showed on Wednesday. Analysts forecast rates to rise by 75 basis points in 2011.
One-month offshore non-deliverable forward contracts were quoted at 45.65, weaker than the onshore spot rate.
In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange and MCX-SX were both at 45.53, with the total traded volume on the two exchanges at about $1 billion.