The partially convertible rupee ended at 44.9650-9750 per dollar, 0.5 percent weaker than its Friday's close of 44.735-740, but off the day's low of 45.0650 a level not seen since June 28.
"The stock market contributed to the fall, and the euro zone is still in troubled waters," said Hari Chandramgathan, a senior foreign exchange dealer with Federal Bank, adding the rupee could touch 45.25-45.35 in the near-term.
Indian shares shed 1.8 percent on Monday, taking their losses to more than 7 percent in five straight sessions, after Standard & Poor's downgrade of the US debt rating triggered a flight from risky assets in global stock markets.
A weaker euro also hurt the Indian unit, traders said.
The euro shed early gains against the dollar and fell versus other currencies as initial relief over European Central Bank purchases of Spanish and Italian government bonds fizzled out in the face of a further sell off of risky assets.
The euro was at $1.4257 at the close of the local forex market, having risen as much as $1.4401, compared with $1.4170 close last Friday.
The index of the dollar against six major currencies was down 0.08 percent at 74.540 points, versus its 74.953 previous close.
"With the US downgrade, the markets are in a tizzy. Foreign fund outflow concerns are weighing," a trader with a private bank said.
Traders said dollar demand from oil importers also weighed on the local unit. State-run banks have been buying dollars since last week for domestic oil refiners to clear import dues estimated at around $5 billion to Iran.
The one-month onshore forward premium was at 21.25 points from 20.25 points, while the three-month was at 58.25 points from 59.25. The one-year onshore forward premium fell to 178 points from 191.75 points last Friday.
One-month offshore non-deliverable forward contracts were quoted at 45.25, 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 the MCX-SX were both at 45.1150, while those on the United Stock Exchange was at 45.1125. The total volume was at $15.91 billion.
Copyright Reuters, 2010