MUMBAI, July 26 Reuters The Indian rupee declined to its weakest level on record on Friday, pressured by dollar demand from local oil companies, custodial banks and tepid risk sentiment.

The rupee was at 83.7175 against the U.S. dollar as of 1035 a.m. IST, having slipped to a record low of 83.7250 in early trade. The currency had closed at 83.6975 in the previous session.

The rupee has weakened to record low levels in four of the five trading sessions this week.

The declines came amid outflows from local equities, volatility in the Chinese yuan, and expectations that the Reserve Bank of India RBI may allow the currency to weaken slightly as it seeks to correct its overvaluation.

Foreign investors have net sold about 1 billion worth of Indian equities since Tuesday, when the government decided to raise taxes on profits from equity investments and on equity derivative transactions.

The dollar index was at 104.2 on Friday while Asian currencies were mixed, with the offshore Chinese yuan down 0.2 after rallying sharply on Thursday.

Volatility in the yuan may pose a risk to carry trades between the Chinese and local currency, adding pressure on the rupee.

The rupee is expected to keep drifting lower steadily with the RBI likely to continue intervening to manage the pace of depreciation, traders said.

Meanwhile, data released on Thursday showed that the U.S. economy grew more than expected in the AprilJune quarter but inflation pressures subsided.

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