Increased dollar selling by banks on the behalf of the Reserve Bank helped the rupee recover from losses.
"Rupee pared losses and closed flat as crude oil prices retreated and dollar selling by state-run lenders on behalf of RBI," V K Sharma, Head PCG & Capital Markets Group, HDFC Securities said.
Bond markets also arrested their decline as softer US yields supported the sentiment. The benchmark 10-year bond yield fell by 4 basis points, the most since October 16, to 7.89 per cent as investors cut down exposure to riskier assets.
The rupee settled at 73.57 per dollar, showing a loss of just 1 paise over the previous close. On Monday, the rupee had settled 24 paise lower at 73.56 against the US dollar.
Stock markets fell for the fourth day in a row tracking sluggish trend in global markets on geo-political tensions and fresh worries over trade war.
The 30-share BSE Sensex closed down 287.15 points or 0.84 per cent at 33,847.23.
Foreign investors took out more than Rs 850 crore from capital markets since Friday amid growing geopolitical tensions.
The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 73.7818 and for rupee/euro at 84.4743. The reference rate for rupee/British pound was fixed at 95.5568 and for rupee/100 Japanese yen was 65.62.
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