The rupee shed early gains to close flat on Tuesday, holding just above 43.00 per dollar, with selling pressure from weaker local stocks and high oil prices balanced by expectations of the Reserve Bank of India support.
The partially convertible rupee ended at 42.9625/9700 per dollar, off an early high of 42.9250, and virtually unchanged from its previous close of 42.9650/9750.
"The rupee was rangebound today, the central bank fears continue to grip the market," a chief dealer with a cooperative bank said.
The central bank was suspected to have intervened to buy rupees when it touched a 13-month low of 43.21 per dollar in late May. Dealers say it seems determined to keep the currency stronger than 43.00 per dollar, although they said there was no sign of it intervening on Tuesday.
The benchmark 30-share index dipped below 14,000 points for the first time in 10 months on Tuesday as political uncertainty and expectations for an interest rate increase kept investors on edge.
So far in 2008 foreign funds have sold a net $6.1 billion of Indian shares, more than a third of what they pumped in last year, helping push the rupee down 8.3 per cent. The rupee rose more than 12 per cent in 2007.
The share index has fallen more than 30 per cent so far this year, making it one of the worst performing Asian indices.
Oil rose for a third straight session on Tuesday and was trading close to $138 a barrel.
One-month offshore non-deliverable forward contracts were quoting at 43.27/37, weaker than the onshore rate.