The rupee fell to its weakest level since mid-March on Thursday as risk aversion gripped financial markets, with investors focused on the possibility of US involvement in the Israel-Iran conflict.

The rupee touched a low of 86.89, slightly paring losses to close at 86.72 against the US dollar, down 0.3 per cent during the day.

Indian government bond yields rose on Thursday as traders squared off positions, fearing further escalation of geopolitical tensions.

Meanwhile, mild dollar sales from state-run banks helped the rupee limit its losses, three traders said. The currency has declined by a little under 1 per cent this week so far.

The rupee could find some support near the psychologically important 87 level and is likely to trade with a weakening bias in the near term, a trader at a foreign bank said.

Mid & smallcap hit

Benchmark indices Sensex and Nifty ended lower for the third straight session on Thursday, in line with weak trends in global markets, as geopolitical uncertainties due to the ongoing Iran-Israel conflict unnerved investors.

But the main action was in the BSE smallcap gauge, which tanked 940.05 points to close at 52093.75, and the midcap index lost 1.64 per cent, or 749.34 points, to close at 44941.19.

The US Fed’s decision to keep interest rates unchanged and rising global crude prices also dampened market sentiment, experts said.

In a largely volatile trade, the 30-share BSE Sensex declined 82.79 points, or 0.10 per cent, to settle at 81361.87. During the day, it hit a high of 81583.94 and a low of 81191.04, gyrating 392.9 points.

The 50-share NSE Nifty dipped 18.80 points or 0.08 per cent to 24793.25.

“The Indian equity index experienced range-bound movement with a negative bias as cautious sentiment spread across the globe, driven by concerns over the potential US involvement in the West Asian conflict.

“Investor mood was further affected by the Fed’s decision to keep interest rates unchanged while signalling persistent inflation and slower economic growth, which weighed on software export stocks,” Vinod Nair, head of research, Geojit Investments Limited, said.

In Asian markets, Japan’s Nikkei 225 index, Shanghai’s SSE Composite index and Hong Kong’s Hang Seng settled in the negative territory, while South Korea’s Kospi ended marginally higher.