Non-deliverable forwards indicate the rupee will open at around 83.36-83.37, barely changed from its close at 83.3825 in the previous session.

The 10-year U.S. Treasury yield fell to a low of 4.16% overnight in New York after data showed that U.S. job openings fell to 8.73 million in October, the lowest in over two and a half years.

Weakness in the data also prompted investors to raise bets that the U.S. Federal Reserve may begin to cut rates as soon as March.

But the rupee has largely strayed from being driven by fundamentals, a foreign exchange trader at a private bank said. "It is just people guessing what would be the Reserve Bank of India's (RBI) response and actual RBI action."

The RBI likely sold U.S. dollars on Tuesday to cap the rupee's decline, traders said.

The rupee has also been unable to gain amid a pick-up in equity inflows. Overseas investors have bought Indian equities worth more than $2.5 billion in December so far, compared to $1.08 billion in November, according to NSDL data.

Unfazed by the drop in U.S. bond yields, the dollar index ticked up to 103.97, extending its recovery after a sharp fall over the last three weeks.

Dovish comments from a European Central Bank official and safe-haven demand amid intensifying conflict between Israel and Hamas likely aided the dollar's recovery, MUFG Bank said in a note.

Investors now await further cues on the U.S. labour market from jobless claims data due on Thursday and the crucial non-farm payrolls report due on Friday.

KEY INDICATORS:

** Dollar index down at 103.94

** Brent crude futures up 0.4% at $77.5 per barrel

** Ten-year U.S. note yield at 4.2%

** As per NSDL data, foreign investors bought a net $660.2mln worth of Indian shares on Dec. 4

** NSDL data shows foreign investors bought a net $316.4mln worth of Indian bonds on Dec. 4

(Reporting by Jaspreet Kalra; editing by Eileen Soreng)

By Jaspreet Kalra