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The Indian rupee touched a record low on Tuesday, as weakness in domestic equities and other Asian currencies on fears of a global recession weighed on the local unit, although bonds rose following high demand for safer assets.

Bond yields dropped as a sell-off in global equity markets boosted demand for safe-haven U.S. Treasuries and had a knock-down effect on Indian government bond yields.

The euro hovered close to a 20-year low near parity to the dollar amid concerns that an energy crisis could tip Europe into recession, while the U.S. Federal Reserve continues to aggressively tighten policy to curb inflation.

India's partially convertible rupee ended trading at 79.5975 per dollar versus its close of 79.4375 on Monday. The currency touched a life-time low of 79.6625 during the session.

Traders expect the Reserve Bank of India (RBI) to sell dollars via state-run banks to prevent runaway depreciation like it has in recent months.

"We could see 80 levels on the USD/INR very soon. The only force holding it back from falling there is the RBI. But with most other Asian currencies falling, we should get there sooner rather than later," a senior trader at a private bank said.

Asian currencies were all trading weaker against the dollar. [EMRG/FRX]

The RBI took a slew of measures last week to boost foreign exchange inflows, including allowing overseas investors to buy short-term corporate debt and the opening of more government securities under the fully accessible route.

On Monday, the RBI introduced a mechanism for the settlement of trade in rupees, a measure expected to reduce the demand for foreign exchange and ease pressure on the currency.

India's benchmark 10-year bond yield closed at 7.39%, down 4 basis points on the day.

Traders will watch the June consumer price inflation data due at 1200 GMT for near-term cues and gauging the extent of rate hikes from the RBI at its August policy meeting.

India's retail inflation likely held steady in June, but well above the RBI's tolerance limit for a sixth month as lower fuel and cooking oil prices offset higher services and food costs, a Reuters poll found.