The pound sterling also finished higher at Rs.94.09/11 per pound at close of the forex market here.
The rupee extended its losing run for the second straight day, falling by another 15 paise to end at a near 7-month low of 65.64 against the US dollar amid persistent capital outflows and a fresh ripple of geopolitical tensions.
Headwinds in the form of consistent widening in the trade deficit accompanied by portfolio outflows amid unsupportive global factors kept overall sentiment highly bearish.
Country's trade deficit hit USD 13.69 billion in March, climbing from USD 11.98 billion in February.
This is the weakest close for the Indian currency since September 27, 2017 when it had ended at 65.72.
Despite a positive start to trade, it fell victim to panic reaction to touch a fresh intra-day low of 65.70 a dollar.
Consistent capital outflows from domestic equities against the grim backdrop of the ongoing geopolitical tensions between the US and Russia over the Syria strikes further dampened the trading mood.
Also, participants remained cautious about possibility that the adverse US trade and monetary policy will have a substantial impact on the Indian economy against the grim backdrop of a global trade war and a faster-than-expected tightening of US monetary policy.
Renewed spike in global crude prices on growing worries over supply disruptions especially in the Middle East and falling output as a result of political and economic crisis in Venezuela too largely weighed on the trading front.
Brent crude, an international benchmark, was trading marginally higher at USD 71.41 a barrel in early Asian trade.
The US Treasury Department added India to its watch list of countries with potentially questionable foreign exchange policies, joining China and four others, adding some nervousness and volatility, a forex trader said.
The rupee has been the worst performing Asian currency this year after strengthening over 6 per cent in 2017.
It has already lost nearly 2.77 per cent of value against the US dollar and trading at multi-month lows after making a strong starts to the year.
In the meantime, the greenback staged a spirited comeback after a short-lived downtrend pressure ahead of key US macro releases even as the market's focus shifted back to US trade policy.
On the other hand, riding on the improving mood in markets, local equities racked up their ninth straight gains - the longest winning streak in over three years - after the Met department's normal monsoon forecast further lifted investor sentiments.
The rupee opened modestly higher at 65.44 per dollar from Monday's close of 65.49 at the inter-bank foreign exchange (forex) market on bouts of dollar selling.
It gained further ground to hit a high of 65.41 in mid morning deals before quickly reversing the recovery trend.
Reeling under immense dollar pressure, the home currency accelerated its downside to print day's low of 65.70 towards the tail-end trade before ending at 65.64, showing a loss of 15 paise, or 0.23 per cent.
Overnight, the rupee had fallen by 29 paise.
The RBI, meanwhile, fixed the reference rate for the dollar at 65.6124 and for the euro at 81.3200.
The dollar index, which measures the greenback's value against a basket of six major currencies, was up at 89.29.
In the meantime, China reported first-quarter 2018 GDP growth of 6.8 per cent, topping expectations.
In the cross currency trade, the rupee lost further ground against the pound sterling to finish at 94.09 from 93.68 yesterday.
The local unit also dropped further against the euro at 81.22. The rupee settled against the Japanese currency at 61.33 per 100 yens.
Elsewhere, the pound sterling retreated from new 2018 high against the US dollar as traders responded to a mixed labour market report, which showed wage packets growing slower than was expected in February, while the unemployment rate fell to a new 42 year low amid expectations of interest rate hike in May.
The euro also fell back sharply after briefly testing fresh day's high after the survey in Germany and the euro area came in below expectations for the month of April.
In forward market today, premium for dollar witnessed a steady trend due to lack of market moving factors.Both the benchmark six-month forward premium payable in August and the far-forward February 2019 contract also ended unchanged at 94.50-96.50 paise and 215-217 paise, respectively.