Mumbai: The rupee fell from a two-week high to close three paise lower at 59.34 against the dollar, failing to sustain gains driven by the easing of FDI norms in various sectors and the RBI's liquidity-tightening measures.
Late dollar demand from importers, a strengthening dollar overseas and capital outflows also weighed on the rupee, a forex dealer said.
The rupee moved in a range of 52 paise on alternate bouts of demand and supply, with confusion over the sustainability of the currency's stability after the Reserve Bank of India on Monday announced measures to address exchange rate volatility.
At the Interbank Foreign Exchange Market, the rupee opened at 59.14 to a dollar from the previous close of 59.31 and rallied to a two-week high of 59.05 on the back of firm local equities amid sustained dollar selling by exporters.
The rupee later fell to a low of 59.57 on renewed dollar demand from importers and firm dollar overseas before recovering some ground to end at 59.34, a drop of three paise. On Tuesday, it had gained 58 paise, or 0.97 per cent, following the RBI's measures.
The benchmark S&P BSE Sensex on Wednesday rose 97.5 points, or 0.49 per cent. Foreign institutional investors sold Rs 357.40 crore of shares on Tuesday, as per provisional data with the stock exchanges.
The dollar index was up 0.04 per cent ahead of testimony from the head of the Federal Reserve. 
"Yesterday, Prime Minister Manmohan Singh eased FDI rules for several industries, including insurance and telecom. The markets neglected the news as the changes made in the FDI rules will show results in the long term," said Pramit Brahmbhatt, CEO of Alpari Financial Services (India). The spot rupee is expected to trade within 59.10–59.90 levels, Brahmbhatt said.
Meanwhile, the premium for forward dollars reacted downward on fresh receipts by exporters.
The benchmark six-month forward dollar premium payable in December settled weak at 200-210 paise from yesterday's close of 205-215 paise. Far-forward contracts maturing in June dipped to 403-413 paise from 410-420 paise.
The RBI fixed the reference rate for the dollar at 59.3623 and for the euro at 77.9875.
The rupee fell against the pound sterling to 90.35 from the previous close of 89.52 and turned negative to 78.00 per euro from 77.82.
It improved against the Japanese yen to 59.54 per 100 yen from 59.67. 
Next: HUL, ITC lift Sensex by over 97 points to end at 19,948.73

HUL, ITC lift Sensex by over 97 points to end at 19,948.73
Mumbai: Bolstered by a sharp rise in FMCG giants HUL and ITC, the benchmark S&P BSE Sensex on Wednesday recovered almost half of the previous day's losses, gaining 97.5 points to 19,948.73, even as the government liberalised FDI norms in various sectors.
Mixed-to-weak global trends ahead of the US Federal Reserve Chairman Ben Bernanke's semi-annual testimony and earnings from heavyweights such as Bank of America Corp. and Intel Corp. weighed on the market.
The 30-share Sensex opened higher and climbed to 19,983.22 before dropping to a low of 19,778.54 on the back of a reversal in the European market. The index later recovered on buying in blue-chip counters to end at 19,948.73, a rise of 97.5 points, or 0.49 per cent.
The 50-share CNX Nifty index of the NSE rose 18.05 points, or 0.30 per cent, to 5,973.30.
Hindustan Unilever (HUL) led gains on the Sensex, rising 9.86 per cent, while ITC firmed up by 2.28 per cent. Both stocks climbed to 52-week highs in intraday trade.
"HUL shot up over 9 per cent on account of FTSE rebalancing," said Amar Ambani, head of research at India Infoline. "From July 22, its float increases to 33 per cent from 24 per cent in FTSE's All-World and All Emerging indices. Meanwhile, the company has hiked prices of some of its best selling products in the soap category by up to 15 per cent."
Telecom stocks erased their initial gains and ended with losses of as much as 4.3 per cent after the government allowed 100 per cent foreign direct investment (FDI) in the sector.
Banking, auto and realty stocks, which are sensitive to interest rates, continued to be at the receiving end after the Reserve Bank's measures to tighten liquidity in the banking system and support the rupee.
Shares of HDFC Bank, which on Wednesday posted a 30 per cent increase in net profit to Rs 1,843.86 crore in the first quarter, declined 2.36 per cent. 
On the Sensex, 15 shares ended with gains. The increase in the index was curbed by declines in HDFC Bank, ICICI Bank, Tata Motors, M&M, Bharti Airtel, SBI and Tata Steel.
Asian shares ended mixed ahead of the two-day congressional testimony from Federal Reserve Chairman Ben Bernanke. Key indices in Hong Kong, Japan and South Korea closed higher, while in China, Singapore and Taiwan, they finished lower.
European markets wiped out their early gains and traded lower in late morning deals. The CAC was down 0.5 per cent, the DAX 0.58 per cent and the FTSE 0.36 per cent. The Dow Jones Industrial Average and the Nasdaq Composite Index also indicated weak openings today.
In the domestic market, other Sensex gainers were NTPC (3.18 pc), Wipro (2.96 pc), Tata Power (1.96 pc), RIL (1.58 pc), TCS (1.52 pc), Dr Reddy's Lab (1.37 pc), Cipla (1.14 pc) and Infosys (0.73 pc).
However, Tata Steel fell 3.26 pc, followed by HDFC Bank (2.36 pc), ICICI Bank (2.29 pc), M&M (2.23 pc), Jindal Steel (2.03 pc), Tata Motors (1.85 pc), Bharti Airtel (1.68 pc), Sterlite Ind (1.64 pc), Hindalco (1.59 pc) and SBI (1.17 pc).
Among the sectoral indices, S&P BSE-FMCG rose 3.39 pc, followed by S&P BSE-CD 1.10 pc, S&P BSE-IT 1 pc and S&P BSE Oil&Gas 0.61 pc, while S&P BSE Bankex dropped 2.32 pc, S&P BSE-Metal 1.82 pc, S&P BSE-Auto 0.77 pc and S&P BSE-Realty 0.71 pc.
The total market breadth remained negative, with 1,288 stocks ending lower and 1,032stocks finishing higher. Total turnover rose further to Rs 2,034.54 crore from Rs 1,887.91 crore yesterday.