's threat of a fresh 10% levy on BRICS countries compounding pressure on the local currency alongside peers like South African rand and Chinese yuan. Worries over U.S. trade policies dented risk sentiment across the board, pushing Asian currencies and equities into the red while U.S. equity futures pointed to a weak return from the long weekend.

The rupee had declined to a low of 86.0275 per U.S. dollar during the session but pared losses to close at 85.85 per U.S. dollar, down 0.5% on the day, its worst performance since mid-June, when it traded in the shadow of a military conflict between Israel and Iran.

In a social media post, President Donald Trump said the U.S. would start delivering tariff letters from 12:00 pm ET (1600 GMT) on Monday.

In a separate post, he rolled out a wholly new tariff policy, calling for countries "aligning themselves with the Anti-American policies" of the BRICS developing nations to be charged an extra 10% tariff, with no exceptions to be granted.

It was not immediately clear if Trump's tariff threat would derail trade talks with India and other BRICS nations. The South African rand fell 1% after Trump's threat while the offshore Chinese yuan was down 0.2%. The absence of progress on trade negotiations over the weekend has come as a negative surprise for markets with Trump's BRICS remark especially hurting the rupee, said Dilip Parmar, a foreign exchange research analyst at HDFC Securities. Parmar expects the Reserve Bank of India to step in to support the rupee if volatility remains elevated due to uncertainty on U.S. trade policies.

On the day, traders also pointed to strong dollar demand from a large local private bank which pressured the local currency.

A fall below the 85.80 level triggered stop-losses and accentuated the day's move, a trader at a state-run bank said. He expects the currency to weaken to 86.50 in the near-term in the absence of positive developments on the trade front.