The Indian rupee on Thursday plunged to an over eight-month low of 71.81, dropping 26 paise against the US dollar as tumbling equities and incessant foreign fund outflows weighed on sentiment.

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Also, the sudden drop in Chinese yuan led to increased volatility in emerging market currencies, including the rupee, forex dealers said.

At the interbank foreign exchange, the Indian currency opened weaker at 71.65 a dollar and went on to touch the day's lowest level at 71.97. It finally settled at 71.81, down 26 paise against the American currency. This was the lowest level for the rupee since December 14, when it had closed at 71.90.

On Wednesday, the Indian rupee had closed at 71.55 a dollar.

Bringing the rupee under more pressure, the global crude benchmark Brent Futures rose 0.75 per cent to trade at USD 60.75 per barrel on Thursday.

Adding to rupee woes, the dollar index -- which gauges the greenback's strength against a basket of six currencies -- rose 0.02 per cent to 98.31.

The 10-year Indian government bond yield was down at 6.56 per cent on Wednesday.

Meanwhile, foreign investors pulled out Rs 902.99 crore from Indian equities on Thursday, as per exchange data.

"Indian rupee falls to its lowest level since December 14, 2018, mirroring a sudden drop in Chinese yuan and a fall in domestic equity. The mood of the market changed after the chief economic advisor said no need for stimulus.

Rupee fell as much as 0.6 per cent to 71.9750 while Chinese yuan drops as much as 0.40 per cent, most since August 7, to 7.0933 a dollar," V K Sharma, Head PCG & Capital Markets Strategy, HDFC Securities, said.

The dollar index edged higher today after minutes from the Federal Reserve's July meeting showed most policy makers viewed their interest-rate cut as part of a mid-cycle adjustment, while they remained confident in a sustained US economic expansion, he said.

Meanwhile, the Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 71.5508 and for rupee/euro at 79.3942. The reference rate for rupee/British pound was fixed at 86.8913 and for rupee/100 Japanese yen at 67.20.