The Indian rupee lost 17 paise at 42.77/78 against the greenback Wednesday after failing to hold the initial surge as meltdown in stock markets raised fears of capital outflows.

At the Interbank Foreign Exchange (forex) market, the domestic unit resumed stronger at 42.58/59 and later moved in a range of 42.53 and 42.80 during the day. It had closed at 42.60/61 a dollar Tuesday.

Forex dealers attributed initial surge in the local currency to fairly heavy dollar selling by custodial banks in the face of slow demand from oil companies.

They said a sharp fall in domestic stocks after the government raised the petrol and diesel prices by Rs 5 and 3 a litre weighed heavily on the rupee sentiment.