Mumbai: The Indian rupee on Tuesday weakened further on dollar demand from nationalized banks for some defence-related expenses but foreign exchange dealers are still optimistic about a steady appreciation in the local currency by the year-end backed by improvement in sentiments in domestic market.

The partially convertible Indian rupee fell as much as 0.7% to test an intraday low of 53.85 against the dollar towards the end of the trading hours and ended the day at 53.74 per dollar, or 0.48% down from the previous close.

“There was no visible trend in the market today except that there was demand from some public-sector banks on behalf of government for some defence-related expenses," said Naveen Raghuvanshi, assistant vice-president, treasury, at Development Credit Bank Ltd.

A recent survey of treasury dealers conducted by Mint had shown that the rupee may touch 50 by end of December drawing strength from the optimism in the financial markets in the aftermath of a slew of reforms announced by the Congress-led United Progressive Alliance government.

In mid-September, the government had announced steps, including hiking the foreign direct investment limit in sectors such as aviation, multi-brand retail, insurance and pension, among others. The execution of these announcements, however, is critical to decide the future course of the local unit, dealers said.

Since 13 September, the local currency has appreciated about 3%. The currency has lost about 1.61% so far this year when foreign investors have invested $18.03 billion in the domestic equity market.

On Tuesday, BSE’s 30-share benchmark Sensex fell 0.44% to close at 18710.02 points while NSE’s 50-share Nifty index fell 0.45% to 5,691.40 points.