MUMBAI: The rupee recovered sharply on Friday to close at 85.37 against the dollar after touching an intraday low of 85.85, helped by dollar sales from public sector banks acting on behalf of the RBI.The domestic currency closed at 85.71 in the previous session.Despite the late recovery, the rupee posted its steepest weekly decline in recent weeks, losing nearly 1% as geopolitical tensions between India and Pakistan rattled investor sentiment and triggered outflows from sovereign bonds. The conflict between the two neighbours intensified, with both sides reportedly deploying drones and artillery for the third straight day, marking the worst escalation in nearly three decades. While analysts believe both countries have a fundamental incentive to avoid large-scale escalation in the medium term, they also flagged the high level of uncertainty surrounding geopolitical developments.The mounting tensions hurt domestic equities, with the Nifty 50 falling over 1% on Friday. Govt bonds, which dipped early in the session, later recovered. Offshore markets reflected growing nervousness, as one-month dollar-rupee non-deliverable forwards rose to a one-month high.