Dealers said though sentiment for the rupee was positive in the near term, sharp gains are unlikely due to the central bank's reluctance to let the currency appreciate sharply.
I doubt too much of rally is possible for the rupee. RBI does not want too much of appreciation and global markets are at an elevated level so a correction in risk assets globally will affect India as well, said Samir Lodha, managing director at QuantArt Market Solutions.
I see a low probability of Indian currency moving to 58 or even 58.5, but 59 is possible. Though rupee will bounce back to 61 or 62 levels whenever a global markets selloff happens.
The partially convertible rupee closed at 59.74 per dollar compared with 59.69 on Wednesday. The rupee rose to 59.52 in early trade, its strongest since June 13.
The central bank likely bought dollars via state-run banks around 59.60 levels to prevent further appreciation in the pair, traders said, but the intervention was sporadic and not easily spotted.
Market participants will continue to monitor moves in other Asian currencies and shares for near-term direction until the Union budget on July 10.
Shares fell slightly, retreating from record highs hit earlier in the session, as investors snapped a four-day rally by taking profits in recent outperformers such as Hindalco Industries.
Stock moves will also remain critical for providing direction on foreign fund flows.
In the offshore non-deliverable forwards, the one-month contract was at 59.91, while the three-month was at 60.48.