MUMBAI: The Indian rupee extended its drop to the third session on Thursday, dragged by weak domestic equities amid investor concern over slowing growth and lacklustre policymaking.
A tepid euro also weighed as caution set in ahead of the European Central Bank's rate decision later in the day and the EU summit on Friday.
However, some dollar selling by corporates and recent comments from the central bank on the currency, hinting at possible action in case of a further sharp decline in the rupee, helped limit the fall, traders said.
At 11:35 a.m., (0605 GMT) the partially convertible rupee was at 51.81/82 per dollar, weaker than Wednesday's close of 51.715/725 after dipping to 51.9250 in early trade.
The currency is widely expected to move in a band of 51.65 to 51.95 during the day, with a few dealers expecting it to fall to 52 per dollar.
"It is not an impossible task for the rupee to return back to the 52 mark but I think the crucial support around 51.90 should hold for the day," said a senior foreign exchange dealer with a private bank.
Subir Gokarn, a deputy governor at the Reserve Bank of India, on Wednesday said the bank does not want the current fall in the rupee to spiral out of control.
Last Saturday, Gokarn had said the RBI will use all available tools to stem a fall in the rupee if the currency's downward spiral escalates.
The rupee had touched a record low of 52.73 on Nov. 22 and is the worst performer among Asian peers so far this year.
"Market expectations of strong measures from EU summit to solve the debt crisis have changed following comments from Germany and so on. Hence, the mood is going to be very cautious through the day," said Uday Bhatt, senior manager of dealing at UCO Bank.
The euro consolidated further on doubts about whether European leaders can agree on a plan to tackle the region's debt crisis at a summit on Friday. Optimism was tempered on Wednesday, when a senior German official told a pre-summit briefing he was "more pessimistic than last week about reaching an overall deal."
The ECB will announce its rate decision at 1245 GMT and it is widely expected by economists to cut interest rates.
The index of the dollar against six major currencies was at 78.469 points, compared with 78.602 points when the rupee market closed on Wednesday. The euro was trading at $1.3399 versus $1.3384 previously.
India's main share index was down about 2 percent after ending positive on Wednesday.
The one-month offshore non-deliverable forward contracts were quoted at 52.23, below the onshore spot rate and indicating a bearish near-term outlook.
The one-month onshore forward dollar premium was at 28.25 points from 27.75 on Wednesday, the three-month was at 72 points from 69.50 points, and the one-year premium was at 209 points from 201.50.
In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange were all at 52.0550. The total volume was at $1.67 billion.
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