The rupee reversed all intraday gains to hit its lowest in two-and-a-half years on Monday after domestic equities lost steam and strong dollar demand mainly from local oil refiners.

Huge

Huge Fall: Rupee

Lingering concerns over the possible spill over of Europe's debt crisis created choppiness in the euro and weighed on the rupee as well, traders said. The partially convertible rupee ended 0.3 percent lower at 50.285/295 per dollar, after touching 50.4250- its lowest since April 28, 2009. It had ended at 50.115/125 on Friday.

During the day, the local unit had moved in a wide band of 49.91 to 50.4250, an indicator of the volatility in the market.

Sentiment is still in the risk-off mode. The macro fundamentals like trade deficit are also rupee negative so pressure on the rupee will continue, said Pramod Patil, senior foreign exchange dealer at State Bank of Mauritius.

Last Tuesday, India's trade secretary, citing provisional data, had said the country's trade deficit in October was seen at $19.6 billion, the highest in four years. At this rate, the trade deficit for the year could breach the $150 billion mark, the secretary had said.

State Bank of Mauritius's Patil added that if rupee moves below the 50.50 mark, then technicals predict the next support to be near 50.80. Analysts polled by Reuters last week too were bearish on the rupee's outlook. The Indian currency may re-test a record low of 52.20 per dollar on a widening trade deficit, falling car sales and a Moody's outlook downgrade of the country's banking sector.

Indian shares erased early gains to fall 0.4 percent to their lowest close in three weeks, while Brent crude oil steadied around $114 per barrel. Oil is India's biggest import item and domestic oil refiners are the largest purchasers of dollars in the local currency market.

The euro was at $1.3664 at end of rupee trade, while the index of the dollar against six major currencies was at 77.304 points. The one-month onshore forward premium was at 27.50 points from 27 points on Friday, the three-month was at 68.50 points from 66.50 and the one-year was at 172.75 points from 163.50.

One-month offshore non-deliverable forward contracts were quoted at 50.61, weaker than the onshore spot rate.

In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange ended at 50.4450, while on the United Stock Exchange and the MCX-SX both ended at 50.4475. The total volume was at $4.47 billion.