Breaking four straight sessions of gain, the rupee today dropped 17 paise to close at 60.31 against the dollar due to demand for the US currency from banks and importers.
The Reserve Bank's suspected intervention in the forex market by way of dollar purchasing also weakened the rupee.
"Nationalised banks were buying dollars today, so it is suspected that it was on RBI's behalf. The RBI has been buying dollars for the past two-three days to shore up the forex reserves," said Agam Gupta, Managing Director and Head of Fixed Income Trading, Standard Chartered Bank.
The greenback was trading higher in overseas markets. The dollar index was up by 0.15 per cent against a basket of six major global units.
A forex dealer said the rupee's fall was restricted to a major extent by sustained fund inflows to equities.
At the Interbank Foreign Exchange (Forex) market, the local currency commenced lower at 60.21 a dollar from the last close of 60.14.
The rupee fell to a low of 60.36 during the day following month-end dollar demand from importers, mainly oil refiners, before concluding at 60.31, showing a fall of 17 paise or 0.28 per cent.
Meanwhile, The benchmark BSE Sensex today spurted by over 119 points or 0.54 per cent to a new closing peak.
As per Sebi data, FIIs picked up shares worth USD 171.04 million yesterday.
Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said, "Rupee traded range bound today and ended lower as month-end dollar demand from oil importers nullified the effect of equity markets which posted the new all time high."
Meanwhile, forward dollar premium continued to rule weak on persistent receipts by exporters.
The benchmark six-month premium payable in August dipped to 213-215 paise from last Friday's close of 220-222 paise.
Far forward contracts maturing in February, 2015 also fell to 454-456 paise from 464-466 paise.
The RBI fixed the reference rate for dollar at 60.7030 for the euro at 83.8070.
The rupee improved further to 100.30 against the pound from last close of 100.53. It also remained firm to end at 83.70 per euro from 84.03.
The rupee hardened to 59.33 per 100 Japanese yen from 59.53.