The rupee declined 12 paise to settle at 86.47 (provisional) against the US dollar on Thursday amid the strengthening American currency and continuous outflow of foreign funds.

However, positive domestic equity markets and lower crude oil prices supported the Indian currency at lower level, forex traders said.

At the interbank foreign exchange, the rupee opened at 86.46 and moved between high of 86.38 and low of 86.52 against the greenback during the session. The local unit settled at 86.47 (provisional) against the US dollar, registering a loss of 12 paise from its previous close.

On Wednesday, the rupee appreciated 23 paise to close at 86.35 against the dollar.

Anuj Choudhary, Research Analyst at Mirae Asset Sharekhan, said the rupee declined on a strong US dollar and recovery in the US treasury yields. FII outflows too weighed down the local unit. However, weak crude oil prices and positive domestic markets cushioned the downside.

"Investors may remain cautious ahead of Bank of Japan's monetary policy tomorrow. BoJ is expected to hike interest rates by 25 bps. USD-INR spot price is expected to trade in a range of Rs 86.20-86.80," he said.

Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading 0.07 per cent higher at 108.04.

Brent crude, the global oil benchmark, was down 0.16 per cent to USD 78.87 per barrel in futures trade.

In the domestic equity market, the 30-share BSE Sensex climbed 115.39 points, or 0.15 per cent, to settle at 76,520.38, while the Nifty rose 50 points, or 0.22 per cent, to 23,205.35.

Foreign Institutional Investors (FIIs) remained net sellers in the capital markets on Wednesday, offloading shares worth Rs 4,026.25 crore, according to exchange data.

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