The rupee ended trading on Wednesday at 43.62 to the dollar, down 1.2% from its weekend close.

In the last hour of trading, the Reserve Bank of India tried to halt the slide with strong words but little action.

Reserve Bank of India governor Bimal Jalan issued a statement saying that the RBI was "closely monitoring the situation and will take appropriate measures as and when considered necessary."

But traders discounted the move, saying that there was little concrete sign of intervention.

Domino effect

The effective devalaution of the Russian currency on Monday has put pressure on emerging market currencies around the world.

But the Indian currency has also been hit by political uncerrtainties at home and the effect of American sanctions after India detonated its nuclear weapons.

The coalition government has suffered several shaky patches since its formation in March, with differences over economic policy among the problems.

And the US ban on investment and international institutional lending has had an adverse effect, despite the issuing of a dollar-denominated bond by the Indian government aimed at expatriates.

Interest in the The Resurgent India Bond Issue has slowed and it has only amassed $2.72bn in the past two weeks despite its high interest rates.

Until recently the rupee had fared better than some other Asian currencies.

Since the beginning of the Asian crisis a year ago in July, the rupee has fallen 18% against the dollar, compared with 80% for the Indonesian rupiah, 40% for the Malaysian ringgit, and 37% for the Thai baht.

But now dealers believe that continued negative sentiment will push the currency lower.

"Sentiment on the ruppee is pretty bearish. There is no sign of a reversal in the trend and until this happens, dollar supplies will remain short," commented K.N. Dey, of Mecklai Financial and Commercial Services in Bombay.