Mumbai: The Indian rupee weakened to an over two-year low on Thursday as a sell-off in most emerging market equities and currencies triggered outflows from the domestic stock market. Concerns of another yuan devaluation also kept investors edgy.

The currency settled at 67.30 per dollar on Thursday after shedding 0.66% in a single session. The rupee was the second worst performer among Asian currencies on Thursday.

Most Asian currencies dropped by about 0.25% on Thursday as worries over a further devaluation of the yuan persisted although the Chinese central bank has been pegging the mid-point of the yuan higher for the past three sessions.

The Chinese currency has weakened by 0.87% since the beginning of 2016 and fallen over 4% since 11 August when the yuan was devalued for the first time. The rupee’s losses have mirrored those of the Chinese currency closely.

Most emerging market stocks from Hong Kong to Jakarta fell nearly 3% on Thursday, extending their worst rout since 1998 on persistent concerns that China’s move to progressively devalue its currency would hit the exports of other countries in a region already hit by slowing economic growth.

The MSCI Emerging Markets Index—designed to measure equity market performance in global emerging markets—has declined 9.3% since the start of the year.

A weakening Chinese yuan makes products of other emerging market countries uncompetitive, thereby hitting their exports. Indian exports have fallen for 14 straight months. Further, concerns that a deepening slowdown in the Chinese economy will drag global growth also weighed on sentiment. China is due to release its gross domestic product data for 2015 later this month.

“There is less investor interest and more outflows. Most of the emerging market currencies are down. We are better than others but the rupee is biased towards depreciation," said Ashish Parthasarthy, head of treasury at HDFC Bank.

In India, the 30-share Sensex and the 50-share Nifty on Thursday fell by 0.35%. Concerns over corporate earnings also triggered dollar outflows. Foreign portfolio investors (FPI) have pulled out $173.8 million from local shares over the past to 13 January although they bought a marginal $42 million on Thursday, according to provisional data from the Securities and Exchange Board of India.

FPIs have already pulled out $447.9 million from shares in the first 10 trading sessions of the year.

“We cannot be an outlier directionally even though we are an outlier as the depreciation is less in rupee. Once things stabilize and investor flows start coming in, then there could be a disproportionate investor interest in India," said Parthasarthy.

The rupee lost 4.5% in calendar year 2015 and continues to weaken against the dollar but it has appreciated against a 36-currency basket of India’s trading partners. The real effective exchange rate showed that the currency was overvalued by 12.86% in December. Analysts predict a gradual depreciation of the currency and banks such as UBS predict the rupee to weaken to 70 per dollar by March.

Currency dealers expect the Reserve Bank of India (RBI) to step in and check volatility should the rupee’s fall accelerate. The RBI has been intervening in the exchange rate market frequently over the last two years to curb excessive volatility.

“There are always state-owned banks selling at levels close to 67/$ and buying dollars around 65/$, which points towards intervention," said a currency trader at a foreign bank asking not to be named.