Mumbai, Nov 27 (IANS): The Indian rupee dipped in the early hours of trade on Friday to its lowest level against the US dollar in over two years, mainly on account of the gaining strength of the American currency, but recovered somewhat on likely sales by the central bank.

The Indian currency was at 66.88 to a dollar at 9.15 a.m., falling nearly 40 paise in two days on account of selling by foreign funds. But some dollar sales by public sector banks, ostensibly at the behest of the Reserve Bank of India (RBI), cushioned the losses, analysts said.

A spike of over 150 points or 0.57 percent in a key Indian equity market index -- the sensitive index of the Bombay Stock Exchange (BSE) -- also helped the rupee to harden a bit. The currency was quoting at around 66.74 to a dollar around 11.45 a.m.

After quoting at the lowest levels since September 2013 in early trade, the rupee was hovering around 66.77 to a US dollar at 2.30 p.m.

Analysts said the accumulated dollar buying owing to two consecutive holidays for outright purchases coupled with the usual month-end demand for greenbacks from foreign banks and oil importers put pressure on the rupee value. 

The Indian spot markets were closed on Nov 25, followed by the US markets on Nov 26.

"Positive domestic equities and suspected selling has led the rupee to recover from the dayÂ’s high," Hiren Sharma, senior vice president, currency advisory at Anand Rathi Financial Services, told IANS 

According to Sharma, the markets would remain choppy ahead of US Federal Reserves' (US Fed) December meeting, the critically watched Syrian conflict and recent terror attacks. 

"Rupee will continue to be on a weaker side. It may hold in a range of 67.20 to 66.20 before US Fed's meeting," Sharma added.

Recent US economic data and signs from the US Fed has indicated an imminent rate hike in the US from December. 

A rate hike in the US could potentially lead to massive amounts of pull-back of foreign funds from emerging economies like India. 

Furthermore, the US dollar will strengthen against emerging market currencies, gold and other assest classes.

Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, told IANS that the rupee's position can change drastically -- if parliament is able to pass the Goods and Services Tax (GST) Bill.

"The trend of foreign institutional investors (FIIs) off-loading stocks due to the upcoming US FOMC (Federal Open Market Committee) and the expected rate hike in the US has impacted the rupee value," Banerjee said.

"It is speculated that the Reserve Bank of India (RBI) entered the markets and sold dollars to arrest the rupee's fall. The RBI will get a big help if the GST is passed." 

The government needs to pass the GST bill in this session to meet the April 1, 2016, roll-out deadline.

In addition, the FII's have been jittery owing to the Syria conflict, the Paris terror attacks and concerns about possible terror threats worldwide.

On Thursday, FIIs sold stocks worth Rs.398.1 crore in the Indian equity markets.

The FIIs have taken out Rs.23,352 crore during the August-September period.