The rupee sank to 41.90 as panic gripped the market on the news of Pakistan's series of nuclear tests. The rupee had closed at 41.35/40 against the dollar -- five paise lower than the previous day's close -- at the end of the official trade.

Foreign banks were active on the kerb and deals took place at 41.90 as news of Pakistan's nuclear tests spread in the market. Forward premiums shot up by 10-12 paise across all maturities on the kerb as the shadow of an imminent Indo-Pak showdown loomed large.

A section of dealers felt the rupee would lose ground further and may pierce the psychologically important 42-level on Friday. However, ICICI Bank's PH Ravikumar doesn't expect that to happen. "It has depreciated by 4 per cent over the last 10 days. This is a sufficiently sharp fall," he said.The rupee opened at 41.30/33 on Thursday against the previous close of 41.30/35, and it dipped onspeculative buying by banks. Exporters sold dollar at this level. The State Bank of India bought dollars at 41.25 forcing importers to rush for cover, dealers said. The six-month annualised forward cover which strenghtened to 8.60 per cent against its previous close of 9.5 per cent again shot up 15 paise on the kerb.

The premiums opened stronger by about 3 to 5 paise paise across all maturities and gained further as exporters and banks were seen receiving premiums during the day.