Mumbai: The rupee weakened on Thursday, giving up three-week high touched in the previous session, weighed down by weak domestic shares, dollar demand from oil firms and late reversal in the US unit versus majors.

The partially convertible rupee closed at 46.66/67 per dollar, 0.8% below its previous close of 46.29/30, which was its highest since 20 October. The unit traded in a band of 46.37 to 46.64 on Thursday.

“Rupee took cues from equity markets, which continued to be bearish despite better-than-expected output data. There was a lot of profit-taking on the long-rupee positions built yesterday,” said Ashutosh Khajuria, head of treasury, at IDBI Bank.

“Over the next week, the rupee should be close to 46.50. The topside for the dollar should be capped at 46.65. I am still bullish on the rupee in the medium term,” he added.

The industrial output grew a faster-than-expected 9.1% in September from a year earlier, helped by stimulus measures and adding to the debate over when the government should pull back from its aggressive policies to drive growth.

The Bombay Stock Exchange 30-share benchmark shed 0.9% on profit-taking by investors. The Sensex is up 5% this month after it shed 7.2% in October, when it had registered its worst monthly fall.

Foreign fund flows in and out of the local equity market are key in determining the direction for the rupee. Foreign investors have bought a net $14.8 billion so far in 2009, helping the rupee claw back from a record low of 52.2, hit in early March.

Last year, outflows of more than a net $13 billion had pushed the rupee down by a fifth.

Dealers said dollar’s rebounce against major currencies in late trading and demand for the US unit from oil refiners weakened the rupee.

Oil is India’s biggest import and refiners are the largest buyers of dollars in the local currency market.

One-month offshore non-deliverable forward contracts were quoting at 46.57/67, slightly stronger compared to the onshore spot closing rate.

“A lot of focus would be on the inflation numbers on Saturday, which would provide cues to the stock market on Monday and thus also to the rupee,” IDBI’s Khajuria said.

In the currency futures market, the most traded near-month contracts on the National Stock Exchange and MCX-SX closed at 46.6725 and 46.67 respectively, with the total traded volume on the two exchanges at about $3.7 billion.