At the Interbank Foreign Exchange (Forex) market, the domestic unit commenced lower at 63.15 a US dollar from previous close of 63.10, weakest in ten weeks. It immediately touched a low of 63.18 on weak global and domestic cues.
However, it later logged a high of 62.50 on US dollar selling, before concluding at 62.51, a rise or 59 paise or 0.94 per cent -- the biggest daily gain since vaulting 70 paise, or 1.11 per cent, on November 18, 2013.
In the past three sessions, the rupee had plunged by 129 paise or 2.09 per cent in line with a rout in emerging market currencies and fears of US Fed further trimming stimulus.
"Demand from FIIs for dollar was not seen today. Globally, also we saw some stability in the market. Although the RBI hiked repo rate by 0.25 per cent this time but it seems they are done for now," Agam Gupta, managing director and head of fixed income trading, Standard Chartered Bank.
Yesterday, heavy selling by Foreign Institutional Investors (FIIs) had kept the rupee under pressure. FIIs sold shares worth Rs 1,334.21 crore on Monday.
The US dollar index, consisting of six major global rivals, was up by 0.20 per cent ahead of the US Federal Reserve two-day meeting to discuss a further reduction in stimulus.
Globally, the yen slid against all of its 31 major peers as emerging market currencies like Turkey's lira strengthened.
Meanwhile, forward dollar premiums ended narrowly mixed.
The benchmark six-month forward dollar premium payable in June finished a tad lower at 213-215 paise from 213.5-215.5 paise previously. Far forward contracts maturing in December, however, rose to 460-1/2-462-1/2 paise from 459-461 paise.
The RBI fixed the reference rate for the US dollar at 62.9898 and for the euro at 86.1715. The Indian rupee recovered sharply to 103.59 against the pound from 104.39 previously and rebounded to 85.33 per euro from 86.32. It also jumped to 60.63 per 100 Japanese yen from 61.50.