Rupee depreciated 14 paise to settle at 83.96 (provisional) against the U.S. dollar on Thursday, as volatile geopolitical situation triggered a surge in crude oil prices and weighed down by a steep fall of over two per cent in domestic equity markets.

According to forex traders, a strong American currency and unabated outflow of foreign funds fuelled by the bullish Chinese markets also accelerated the rupee's slide.

At the interbank foreign exchange, the local unit opened at 83.91 and touched the low of 83.97 against the greenback during intra-day. The unit ended the session at 83.96 (provisional) against the American currency, registering a steep loss of 14 paise from its previous closing level.

On Tuesday, the rupee settled 3 paise lower at 83.82 against the American currency. Forex markets were closed on Wednesday on account of Mahatma Gandhi Jayanti.

According to Anuj Choudhary, Research Analyst at Sharekhan by BNP Paribas, the rupee declined on weak domestic markets and a strong dollar, while a surge in crude oil prices also weighed on the domestic unit.

Choudhary said the rupee is expected to trade with a slight negative bias on risk aversion in the global markets and a strong dollar amid escalating tensions between Israel and Iran.

"Traders may take cues from ISM services PMI, weekly unemployment claims and factory orders data from the US. Investors may watch out for non-farm payrolls report from the U.S. on Friday. USD-INR spot price is expected to trade in a range of ₹83.75 to ₹84.20," he added.

Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.23% to 101.91.

Brent crude, the international benchmark, climbed 1.66% to $75.13 in futures trade.

Experts attributed the spike in crude prices to fear of Israel's retaliatory attacks on Iran's oil installations amid escalating tension in the Middle East.

On the domestic equity market front, the Sensex crashed 1,769.19 points, or 2.10%, to settle at 82,497.10, while the Nifty tanked 546.80 points, or 2.12% to close the session at 25,250.10.

Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Tuesday, offloading shares worth ₹5,579.35 crore on a net basis in the cash segment, according to exchange data. FIIs have sold shares worth over ₹15,000 crore since Monday.

Analysts said foreign investors rushed to sell Indian equities as Chinese stocks turned bullish after the country announced a slew of stimulus measures to revive the economy.

On the domestic macroeconomic front, a monthly survey released on Tuesday showed India's manufacturing sector growth fell to an eight-month low in September amid a softer increase in factory production, sales and new export orders.

The seasonally adjusted HSBC India Manufacturing Purchasing Managers' Index (PMI) fell from 57.5 in August to 56.5 in September, registering the weakest pace of growth since January.