The rupee fell 0.5 percent on Wednesday and hit a near 32-month low on continued dollar demand from importers, while a bruised euro and local equities on fears Europe's debt crisis was spreading to top-rated members also dragged.

Bad

Bad Times: Rupee

At 11:04 a.m. (0534 GMT), the partially convertible rupee was at 50.90/91 per dollar, after hitting 50.96 - its weakest since March 31, 2009 in early trade - and weaker than its 50.66/67 close on Tuesday.

By the looks of it, the rupee will eventually move into the 51 per dollar territory, said a foreign exchange dealer with a private-sector bank. The global sentiment is negative given the troubles in Europe, so demand for dollars will stay high. Local oil importers will also have dollar needs and fundamental factors like trade deficit, high inflation point towards a weaker rupee, the dealer added.

The rupee has lost 4.4 percent of its value so far this month and declined by nearly 12.2 percent this year. It remains the worst performer among major Asian peers.

Despite the sharp fall in the rupee's value, traders remain unsure whether the Reserve Bank of India (RBI) will intervene aggressively to shore up the local currency. On Monday, a deputy central banker said the RBI was not contemplating a policy change towards rupee. Subir Gokarn said the bank would intervene only if there was extreme volatility in the foreign exchange market.

The RBI had sold $845 million in September, after following a hands-off approach for nine straight months, data by the RBI showed last Friday.

The euro was at $1.3446, lower from $1.3515 at the end of rupee trade on Tuesday, while the index of the dollar against six major currencies was at 78.322 points from 77.995 points previously. The euro slipped to a fresh one-month low against the dollar and the yen on Wednesday as the euro zone debt crisis threatened to engulf top-rated members such as France, as government bonds of core countries came under pressure.

The BSE Sensex was down more than 1 percent as fears over Europe loomed along with poor corporate results. The one-month onshore forward premium was at 30.50 points from 30.75 on Tuesday, the three-month was at 75 points from 73.75 and the one-year were steady at 188.75 points. The one-month offshore non-deliverable forward contracts were quoted at 51.28, weaker than the onshore spot rate, an indication of the bearish short-term outlook on the rupee.

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 51.0750, with the total volume at $1.18 billion.