The rupee closed at an all-time low of 120.20 a dollar from Monday's close of 117.50, below its previous record closing low of 120.10 reached on April 24, 2009. It fell 2.25 percent on the day, extending the fall to 5.4 percent in the last three sessions.

Currency dealers expects further depreciation with high volatility as the central bank on Thursday changed its intervention method to a quantity, instead of defending a particular level of the currency against US dollar, after spending more than $2.7 billion to defend the currency since July.

The central bank on Tuesday said the rupee volatility was because of hedging by importers and it expects the currency to recover after the long overdue correction.

Traders said negative sentiment from the rupee depreciation along with the rising trend in market interest rates and margin calls led to a more than 4 percent fall in Sri Lanka's stock market in early trade on Tuesday, breaking through the psychological 5,000-point barrier. 

The main share index plummeted 4.57 percent in early trade, but recovered to close 3.65 percent or 190.02 points lower at 5,009.96 points, its lowest since Aug. 8, 2010. 

The index further dipped into the oversold region on Tuesday with the 14-day Relative Strength Index at 16.008 down from Monday's 19.836, well below the lower neutral range of 30, Reuters data showed. It is the worst performer among Asian markets with a 17.52 percent loss so far this year. 

Analysts said the market will further dip due to margin calls. 

"There'll be a massive sell-off especially on speculative shares due to the margin calls," said an analyst asking not to be named. 

The index has fallen 13 percent in the last nine straight sessions on slowing economic growth fears after the central bank raised interest rates by 50 basis points, allowed rupee depreciation and the government increased fuel prices by a maximum of 37 percent.