Tracking the domestic stock market movement, the rupee on Tuesday breached the key 56-level against the dollar in early trade but recovered some losses to close at 55.80, still down 6 paise, after RBI intervention.

After closing at 55.74 yesterday, the rupee opened lower at the Interbank Foreign Exchange (Forex) Market on persistent dollar demand amid a stronger trend overseas.

The rupee touched a nearly one-week low of 56.08 intra-day as dollar demand from corporates rose. With rupee breaching the 56-level, forex dealers said RBI sold some dollars helping rupee recoup some losses as the currency settled at 55.80.

The rupee has in the last three straight sessions lost a whopping 86 paise on heightened local worries.

“Fundamentally, rupee remained weak. Today, we saw some kind of intervention by the RBI after the currency breached Rs 56 level,” said a bank official of a public sector bank.

Though IIP numbers were weak, a turnaround in the equity market provided some support to rupee, according to Geojit Comtrade’s Chief Currency Strategist Hemal Doshi.

“Going ahead, rupee is showing signs of weakness unless the RBI comes up with some kind of policy measures to support the domestic currency,” said another treasury official of a public sector bank.

Meanwhile, the stock market benchmark Sensex after dropping 100 points in early trade, closed 195 points higher at 16,862.80 after weak IIP data fuelled hopes of a rate cut by RBI soon.

The dollar was mixed against its major rivals as selling pressure on Euro eased but concerns over Spain’s bank bailout and uncertainty over Greece weighed on trading sentiment.

More In: Markets | Business