The rupee today recovered sharply by 21 paise to close at 65.21 against the US currency, ending its two-day slide on fresh bouts of dollar selling even as trade deficit widened alarmingly to three-year high.

Domestic currency market largely withstood initial wobble arising from disappointing trade data as export declined due to liquidity crunch faced by exporters after the GST roll out.

Falling crude oil prices helped the rupee tide over trade deficit scare that ballooned to three-year high of $ 14 billion due to twin impact of rising oil imports and falling exports.

The home currency had lost 48 paise to hit a one-month low against the greenback in the last two sessions on concerns over likely fiscal slippage following a sudden rise in crude prices and reversal of inflation expectations.

A swift crash in crude prices after IEA downgrading its demand forecast for both this year and next predominantly revived forex trading sentiment, a forex dealer commented.

The oil benchmark Brent was trading at $ 61.50, down 1.14 per cent in early Asian trade.

Meanwhile, the BSE-Sensex dropped 181 points to close at 32,760.44, while Nifty fell by over 68 points to 10,118.05.

Earlier in the day, rupee made a soft start at 65.43 against overnight close of 65.42 at the Interbank Foreign Exchange (forex) market on mild dollar demand from importers.

Also read: Pressure mounts on rupee

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