Brent crude futures tumbled 5.2% overnight, adding to the previous day's 4.4% decline. Oil prices have posted the biggest percentage loss in the first two trading days of any year for over three decades on worries over demand from China and the world economic outlook.

Weaker oil prices will alleviate concerns over higher current account deficit, with analysts already predicting a print of below 3% of GDP in the current year, said Anil Bhansali, head of treasury at Finrex Treasury Advisors.

"The range for the rupee continues to be between 82.50 and 83.00."

Citigroup lowered its projection for India's CAD to 2.9% of gross domestic product (GDP) for the current fiscal year, citing the growth in the country's service exports and a lower oil price forecast.

The dollar index fell overnight following minutes of the U.S. Federal Reserve's December policy meeting.

Most Fed officials emphasized the need to retain flexibility and optionality when moving policy to a more restrictive stance and none of the policymakers expected rate cuts this year.

Further, the minutes pointed out that the unwarranted easing in financial conditions will complicate the Fed's effort to restore price stability.

"Policymakers want to err on the side of being too restrictive. As long as financial conditions are misaligned with the Fed's goals, expect additional tightening," Morgan Stanley said in a note.

The minutes did not impact expectations for the Fed's February meeting. Futures show a 67% likelihood of the U.S. central bank hiking rates by a smaller 25 bps.

Meanwhile, a survey from the Institute for Supply Management (ISM) showed measure of prices paid by manufacturers tumbled to its lowest level since February 2016.

U.S. 10-year Treasury yields fell around 9 basis points.

KEY INDICATORS: ** One-month non-deliverable rupee forward at 82.83; onshore one-month forward premium at 12 paise ** USD/INR NSE January futures settled on Wednesday at 82.9225 ** USD/INR January forward premium at 9.5 paise ** Dollar index down at 104.12 ** Brent crude futures at $78.7 per barrel ** Ten-year U.S. note yield at 3.71% ** SGX Nifty nearest-month futures up 0.2% at 18,148 ** As per NSDL data, foreign investors sold a net $31 mln worth of Indian shares on Jan. 3 ** NSDL data shows foreign investors sold a net $100.6 mln worth of Indian bonds on Jan. 3

(Reporting by Anushka Trivedi and Nimesh Vora; Editing by Rashmi Aich)

By Anushka Trivedi and Nimesh Vora