Mumbai, Dec 24 (PTI) The rupee pared initial gains and settled for the day lower by 8 paise at 89.71 against the US dollar on Wednesday, fuelled by persistent capital withdrawals from foreign investors, alongside heightened greenback demand from bullion importers.

Forex traders said that despite the central bank's announcement of USDINR swaps and Open Market Operations (OMO), the measures failed to boost market sentiments, amid strong dollar demand and rising crude oil prices.

At the interbank foreign exchange, the rupee opened at 89.56 against the US dollar, then touched an intra-day high of 89.51, registering a 12-paise gain from its previous close.

At the end of the trading session on Wednesday, the rupee pared its initial gains and settled at 89.71, down 8 paise from its previous close.

On Tuesday, the rupee settled at 89.63 against the US dollar.

The decline in the USD/INR pair was driven by a shift toward risk aversion, fuelled by persistent capital withdrawals from foreign investors leading up to the holiday break, alongside heightened greenback demand from bullion importers, said Dilip Parmar, Senior Research Analyst, HDFC Securities.

"Despite the central bank's announcement of USDINR swaps and Open Market Operations (OMO), the measures failed to ignite market enthusiasm as they did little to bridge the widening gap between dollar supply and demand ahead of year-end," Parmar noted.

The outlook for spot USDINR maintains an upward trajectory provided it holds above the 89.00 mark; however, the 90.30-level continues to act as a formidable resistance for further gains, he added.

Jigar Trivedi, Senior Research Analyst at Reliance Securities, said, "The rupee hovered around 89.6/dollar, trading sideways near three-week highs, supported by a softer dollar and recent central bank measures that helped steady sentiment.

"The currency has settled into a holding pattern after rebounding from record lows, with the dollar's slide to a multi-month trough, giving the rupee some breathing room, even as traders remain cautious about sustaining gains." Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.13 per cent lower at 97.81.

Brent crude, the global oil benchmark, was trading 0.22 per cent higher at USD 62.52 per barrel in futures trade.

On the domestic equity market front, the Sensex declined 116.14 points to settle at 85,408.70, while the Nifty dropped 35.05 points to 26,142.10.

Foreign institutional investors offloaded equities worth Rs 1,721.26 crore on Wednesday, according to exchange data.

The Reserve Bank of India on Tuesday said it will purchase government securities worth Rs 2 lakh crore and conduct a USD 10 billion buy/sell dollar-rupee swap auction to inject liquidity in the banking system.

The latest announcement comes days after the RBI conducted Rs 1 lakh crore OMO purchase auctions of Government of India securities and USD/INR Buy/Sell Swap auction of USD 5 billion for a tenor of three years. PTI DRR TRB