The rupee strengthened later to 108.70 with state banks intervening to prop it up, dealers said.
The rupee had been under pressure from the second quarter as the government stepped up borrowings from the Central Bank, while a two year overvaluation stemming widening inflation differentials also weighed the currency down.
Though inflation had been high in the country for two years, the currency was aloft with tsunami aid flows.
Analysts say the rupee’s fundamental overvaluation is now almost cleared, and the Central Bank has also managed to avoid further money printing in November, though the effects earlier loose monetary policy had created widened the trade imbalance, analysts said.
Sentiments in equity markets were also weaker with a broad range of shares taking a step back.
The All Share closed down 16.1 points (0.6 percent) and the more liquid Milanka fell 24 points.
Lanka Hospital was one of the few counters which bucked the trend closing two rupees higher