Mumbai, Aug 27 (IANS): The Indian rupee slipped below the psychological level of 66 against the dollar Tuesday and the capital markets saw heavy selling by foreign funds as the government admitted there were domestic factors behind the currency crisis.

The partially convertible rupee slumped to a new record low of 66.07 against the dollar at the inter-bank foreign exchange market in Mumbai, surpassing the previous record low of 65.56 recorded Aug 22.

The rupee later recovered at 65.92 against the dollar in afternoon. The free fall in rupee led to heavy selling pressure in the equities markets. The benchmark index of equities markets tanked by 574.19 points or 3.09 percent.

The 30-scrip sensitive index (Sensex) of the S&P Bombay Stock Exchange (BSE), which opened at 18,460.72 points, traded at 17,948.43 points around 3.00 p.m., down 609.70 points or 3.29 percent from the previous day's close at 18,558.13 points.

This was the second time the Sensex traded below the 18,000-mark.

The Sensex touched a high of 18,460.72 points and a low of 17,925.11 points during trade so far.

The wider 50-scrip Nifty of the National Stock Exchange (NSE) was also trading down by 194.10 points or 3.54 percent at 5,282.40 points.

Earlier, Finance Minister P. Chidambaram told the Rajya Sabha that the rupee had overshot its true value but expressed confidence that it will find its appropriate level.

"There are not just external factors, there are also domestic factors. We recognise there are domestic factors," he said.

"One of the domestic factors is that we allowed the fiscal deficit to be breached and we allowed current account deficit to swell because of certain decisions that we took during the period 2009 to 2011," he said.

The free fall in rupee value and market capital also came even as the Cabinet Committee on Investment (CCI) Monday cleared three dozen projects worth Rs.1.83 lakh crore.

Chidambaram said: "The message that we are sending, we are very keen to get investment cycle restarted."