Mumbai, Jul 24 (PTI) The rupee pared initial gains to settle just 1 paisa higher at 86.40 against the US dollar on Thursday, as investors remained cautious amid risk aversion in global markets and an overnight recovery in crude oil prices.

Forex traders said uncertainty over the India-US trade deal has been an overhang for the forex market, leaving the rupee trading in a tight range. Moreover, a negative trend in domestic equities and foreign fund outflows weighed on investors' sentiments and restricted the upmove of the local unit.

At the interbank foreign exchange, the domestic unit opened at 86.33 against the greenback and touched an intra-day high of 86.24 and a low of 86.43.

The local unit finally settled at 86.40, higher by just 1 paisa over its previous close.

On Wednesday, the rupee settled with a loss of 3 paise at 86.41 against the dollar.

"After six consecutive days of declines, the Indian rupee found stability against the US dollar, primarily due to the long unwinding of dollar positions. Despite this stabilisation, the local currency remains a median performer among its Asian counterparts, while the greenback has strengthened against the major currencies," Dilip Parmar - Senior Research Analyst, HDFC Securities, said. Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.16 per cent to 97.36, as investors watched out for an India-US trade deal ahead of the August 1 deadline.

"We expect the rupee to trade with a slight negative bias amid geopolitical tensions between Thailand and Cambodia and positive crude oil prices. FII outflows may also weigh on the rupee," Anuj Choudhary - Research Analyst at Mirae Asset Sharekhan said.

"Optimism over the US-EU trade deal and a weak US Dollar may support the rupee at lower levels. Traders may take cues from new home sales data from the US and remain cautious ahead of PMI and durable goods orders data from the US this week. Investors may also take cues from the ECB’s monetary policy decision. USDINR spot price is expected to trade in a range of 86.10 to 86.75," Choudhary said.

If the discussions fail or get delayed, Indian exporters could face fresh pressure -- adding to the rupee's challenges.

However, if a deal is reached, it could offer a much-needed breather. Until then, the uncertainty is likely to keep market participants cautious.

Brent crude, the global oil benchmark, went up by 1.18 per cent to USD 69.32 per barrel in futures trade.

The US team will visit India in August for the next round of negotiations for the proposed bilateral trade agreement between the two countries.

India and the US teams concluded the fifth round of talks for the agreement last week in Washington.

Meanwhile, in the domestic equity market, Sensex fell 542.47 points, or 0.66 per cent, to settle at 82,184.17, while Nifty declined 157.80 points, or 0.63 per cent, to close at 25,062.10.

Foreign institutional investors (FIIs) offloaded equities worth Rs 2,133.69 crore on a net basis on Thursday, according to exchange data. PTI DRR ANU DRR BAL BAL

Foreign exchange stability tested by trade-talk uncertainty and capital outflows, keeping the rupee range-bound amid global risks. Rupee settled nearly flat against the US dollar amid global risk aversion, a crude oil recovery and domestic equity weakness. Uncertainty over the India-US trade negotiations, foreign institutional investor outflows and a stronger dollar constrained rupee gains despite some unwinding of dollar positions. Analysts identified the talks' outcome, US economic releases, geopolitical tensions and crude prices as key near-term determinants of USD/INR trading range and exchange-rate pressure.