Mumbai, Aug 7 (PTI) The rupee extended recovery for the second straight session and settled 14 paise higher at 87.58 against the US dollar on Thursday, backed by a weaker American currency amid volatile global sentiment following US' move to raise duty on Indian goods up to 50 per cent as penalty for buying Russian oil.

Forex traders said, however, muted domestic markets and foreign fund outflows capped sharp gains in the local unit.

They said President Donald Trump's aggressive move, which kicks in 21 days, threatens to raise total duties on select Indian exports to as high as 50 per cent -- making them among the most heavily taxed US imports globally, dented sentiments.

At the interbank foreign exchange, the domestic unit opened at 87.69 and moved in a range of 87.45-87.77 during the day before settling at 87.58, rising 14 paise from its previous close.

On Wednesday, the rupee rebounded from a record low level and closed 16 paise higher at 87.72 against the US dollar.

Trump's tariffs on Indian exports are likely to hit sectors such as textiles, marine and leather exports hard and was slammed by India as "unfair, unjustified and unreasonable".

With this action singling out New Delhi for the Russian oil imports, India will attract the highest US tariff of 50 per cent along with Brazil.

The United States has imposed this additional tariff or penalty for Russian imports only on India while other buyers such as China and Turkey have so far escaped such harsh measures. The 30 per cent tariff on China and 15 per cent on Turkey is lower than India's 50 per cent.

"We expect the rupee to slide as the trade tariff deal continues to linger with US President Donald Trump doubling tariff on India to 50 per cent, denting market sentiments. A weak tone in the domestic equities and selling by foreign investors may also pressurise the rupee.

"However, weakness in the US dollar and falling global oil prices may support the rupee at lower levels. USD-INR spot price is expected to trade in a range of 87.50 to 88," Anuj Choudhary – Research Analyst, commodities and currencies, Mirae Asset Sharekhan.

The Reserve Bank of India (RBI) on Wednesday decided to keep policy rate unchanged at 5.5 per cent and retained the neutral stance, amid concerns over tariff uncertainties.

Announcing the third bi-monthly monetary policy of the current fiscal, RBI Governor Sanjay Malhotra said the growth rate projection for FY26 has been retained at 6.5 per cent.

Meanwhile, Brent crude prices rose 0.52 per cent to USD 67.24 per barrel in futures trade.

The dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.10 per cent to 98.08.

In the domestic equity market, the Sensex advanced 79.27 points to settle at 80,623.26, while Nifty was up 21.95 points to 24,596.15.

Foreign institutional investors (FIIs) offloaded equities worth Rs 4,997.19 crore on a net basis on Thursday, according to exchange data.

Dilip Parmar, Research Analyst, HDFC Securities, said: "The outlook and sentiment favour the US dollar versus rupee, driven by a continued imbalance in dollar demand and supply, as foreign funds persist with their selling of Indian assets. Looking ahead, the spot USD-INR is expected to consolidate between 87.50 and 87.85 in the coming days." PTI DRR HVA

Tariff penalties on imports weaken currency, prompting market volatility, central bank caution and foreign investor outflows. US-imposed additional import duties on purchases of Russian oil, reportedly reaching up to 50 per cent on select Indian exports, have weakened market sentiment, spurred foreign investor selling, and pressured the rupee, while a weak US dollar and lower oil prices intermittently supported the currency. The central bank kept policy rates unchanged and retained a neutral stance, and analysts forecast a defined near term USD INR trading range with tariff uncertainty, equity weakness, and capital outflows as the main transmission channels to exchange rate volatility.