and equity-related outflows, traders said, amid uncertainty over U.S. trade policies. The rupee closed at 86.9850 against the U.S. dollar, down 0.2% from its close at 85.80 on Friday. The currency hit a low of 86.0475 earlier in the day, its weakest level since June 25.

Dollar demand from a large Indian conglomerate and other companies pressured the rupee alongside likely outflows from Indian equities, traders said.

India's benchmark equity indexes, the BSE Sensex and Nifty 50, declined 0.3%, even as most regional peers ticked higher.

Stocks in Europe fell and the common currency weakened marginally against the dollar after U.S. President Donald Trump threatened a 30% levy on the region's imports over the weekend, deepening his ongoing trade war.

U.S. equity futures were in the red as well, with the S&P 500 futures down 0.3%. "The moves have not been larger since investors see these threats as a Washington negotiating tactic to push the other side over the line into a deal," ING said in a note. India is among the few large U.S. trade partners that have not yet received a tariff letter. Indian negotiators are expected to head back to the U.S. soon for another round of talks, centred on disagreements over auto components, steel and farm goods.

"All things considered, chances of the rupee gaining ground remain limited," said Amit Pabari, managing director at FX advisory firm CR Forex. Pabari expects the rupee to face resistance around the 85.40-85.50 level.

Focus is now on India's consumer inflation data due later in the day. Benign food prices and a high base likely helped Indian inflation slow to a more than six-year low at 2.50% in June, according to a Reuters poll of 50 economists.