The Indian rupee nosedived against U.S. dollar on Monday, erasing its early gains, amid rising trade tensions as the U.S. prepares to impose further $200 billion of tariffs on Chinese imports as early as this week.

Sentiment further dampened as the United States and Canada put off resolving their trade dispute.

The Indian rupee opened on a positive note following robust Indian GDP data for the April-June quarter, showing a rise of 8.2 percent.

The early rise faded in late afternoon and the rupee fell to a historic low of 71.22 against the greenback. This marked a 0.7 percent drop from a 4-day high of 70.68 seen in previous deals. The pair was valued at 70.81 at last week's close.

The currency has thus shed almost 3.5 percent against the dollar during the month of August.

Indian markets finished lower, with the benchmark BSE Sensex falling 332.55 points or 0.86 percent to 38,312.52, while the broader Nifty index dropped 98.15 points or 0.84 percent to 11,582.35.

On the economic front, survey data from IHS Markit showed that India's manufacturing activity expanded at the weakest pace in three months in August.

The Nikkei manufacturing Purchasing Managers' Index, or PMI, fell to 51.7 in August from 52.3 in July. However, any reading above 50 indicates expansion in the sector.

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