Mumbai, October 31: The rupee dropped by 40 paise to 74.08 against the US dollar in early trade Wednesday, amid increased demand of the American currencies from importers and sustained foreign fund outflows. Forex traders said, the US dollar's strength against some currencies overseas and concerns around the rift between the government and the RBI also weighed on the local unit.

At the interbank foreign exchange, after opening lower at 73.91, rupee weakened further to quote at 74.08 against the dollar registering a fall of 40 paise over its pervious close. The rupee Tuesday depreciated by 23 paise to close at 73.68 against the US dollar.

A stable crude oil prices, however, restricted the rupee fall to some extent, forex traders said. Globally, Brent crude, the international benchmark, was trading 0.62 per cent up at USD 76.38 per barrel.

Meanwhile, the Reserve Bank of India has said that it will inject Rs 40,000 crore into the system in November by buying government bonds through open market operations (OMO) for maintaining liquidity in the market.

On a net basis, foreign investors pulled out Rs 1,592.02 crore from equity markets Tuesday, as per provisional data. Meanwhile, the benchmark BSE Sensex opened on a higher note up 158.99 points but soon pared the gains and was trading at 33,876.69, down 14.44 points or 0.04 per cent at 0948 hrs.