The rupee witnessed extreme volatility in morning trade, opening higher by 6 paise before rapidly losing ground to Rs 51.50/51 per dollar on the Interbank Foreign Exchange, as against its previous close of Rs 51.46/47 per dollar.
It subsequently dropped further to Rs 51.58 per dollar on good demand from some banks and importers.
However, the domestic currency made a smart recovery thereafter to Rs 51.32 per dollar on fresh selling of dollars by banks and exporters before quoting at Rs 51.36/37 per dollar at 1030 hours.
In New York, the dollar recouped some lost ground against the euro yesterday as US stocks retreated and European bond yields fell in the wake of well-received Spanish and French auctions.
The dollar index, which tracks the US currency against a basket of major rivals, slipped to 78.293 from 78.345 in North American trade.
Meanwhile, the BSE benchmark Sensex was down by 21 points, or 0.12 per cent, in early trade.