A stronger dollar in overseas markets after solid US economic data had weighed on the rupee sentiment in early trade, forex traders said.
At the interbank foreign exchange market, the rupee opened weak at 71.08 then fell further to 71.12 against the US dollar, showing a decline of 14 paise over its previous closing.
Stock markets extending the record-breaking run for the second day, forex inflows and weaker crude oil price helped the rupee defy the dollar pressure and restrict losses.
The domestic unit closed at 70.97 to the US dollar, marginally up by 1 paise over the previous close.
The US dollar strengthened against major global currencies after solid US industrial output and housing data dashed hopes a rate cut anytime soon. Industrial output recovered strongly in November after the end of the strike by General Motors auto workers.
Losses in the pound also supported the dollar gains. The pound erased its election gains on fears that the UK may exit the EU without a deal as Britain set a deadline of December 2020 for a trade deal with the bloc.
The US dollar index was up 0.16 per cent at 97.37 in spot markets.
Jateen Trivedi, Senior Research Analyst (Commodity & Currency) at LKP Securities said, "US Industrial production data supported the dollar as it rose to 1.1% in November from 0.9% fall in the previous month. Additionally, crude oil prices sneaking towards USD 66 a barrel, supported dollar demand as importers worry about higher outflow in buying oil. Rupee can inch down towards 71.20-71.25 in coming sessions".
Stock market benchmark indices Sensex and Nifty closed at record highs for the second straight on Wednesday following a global rally in equity markets. The 30-share BSE Sensex settled 206.40 points, or 0.50 per cent, up at its all-time closing high of 41,558.57 while the broader NSE Nifty advanced 56.65 points, or 0.47 per cent, to its record closing high of 12,221.65.
According to provisional exchanges data, foreign investors put in Rs 1,836.81 crore on a net basis in capital markets on Wednesday.
The 10-year government bond yield was at 6.71 per cent on Wednesday.
Brent crude dropped 0.40 per cent to USD 64.89 per barrel in spot trade.
The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 70.9687 and for rupee/euro at 79.1008. The reference rate for rupee/British pound was fixed at 94.2242 and for rupee/100 Japanese yen at 64.78. BAL MR MR