MUMBAI: The Indian rupee slipped to a lifetime low against the U.S. currency on Monday as the pound's tumble worsened the risk sentiment and boosted the dollar index to a two-decade high.

The rupee was quoting at 81.5750 to the dollar, a record low, by 0530 GMT, down from 80.99 in the previous session.

The Reserve Bank of India likely sold dollars via state-run banks around the 81.50-81.55 level to avert a larger decline in the rupee, four traders told Reuters.

The rupee, after opening at around 81.55, has traded in a narrow 12-paisa range so far.

Despite the RBI lending support to the local unit, analysts reckon that the ascending dollar could pose a challenge.

"We expect the USDINR pair to remain volatile with downside support at 80.50 and strong bullish momentum," Amit Pabari, managing director at CR Forex Advisors, said.

"We do not rule out 82.50 levels on the upside."

The dollar index on Monday climbed above 114.50 for the first time since 2002, supported by rising Treasury yields, the pound's decline to a record low and overall risk aversion.

Asian currencies slid, with the Chinese yuan dropping to its lowest level in 28 months against the dollar. The yuan declined to 7.1690, despite China's central bank on Monday announcing fresh steps to ease the pace of the currency's recent depreciation.

Asian shares plunged by as much as 3%. Indian shares dropped to their lowest level since late July. Futures pointed to more losses for U.S. equities, while Treasury yields rose. (Reporting by Nimesh Vora; Editing by Dhanya Ann Thoppil)