Dollar selling by exporters also aided the rupee rise while the dollar index was up marginally, say traders.
At the Interbank Foreign Exchange (Forex) market, the domestic unit commenced strong at 59.20 a dollar from previous close of 59.33.
It was later trapped in a narrow breadth of 59.10 and 59.23, before ending at 59.17, a net rise of 16 paise or 0.27 per cent. This is its biggest single-day gain since 30 paise rise on May 22.
The Indian benchmark S&P BSE Sensex today shot up by 376.95 points, or 1.51 per cent, to end at new peak of 25,396.46. FIIs infused Rs 1,283.04 crore today, as per provisional data with stock exchanges.
Cutting of key interest rates by European Central Bank (ECB) yesterday to sub zero level also helped the rupee surge as dealers expected more foreign funds inflow in local stocks.
Meanwhile, premium for forward dollar firmed up on payments from banks and corporates.
The benchmark six-month premium payable in November rose to 243.5-245.5 paise from 238.5-240.5 paise previously.
Far-forward contracts maturing in May, 2015 shot up further to 494-496 paise from 480-482 paise.
The Reserve Bank of India fixed the reference rate for dollar at 59.1970 and for the euro at 80.8345.
The rupee remained weak against pound to 99.54 from last close of 99.42 while fell back a little bit to 80.73 per euro from 80.72. It, however, recovered slightly to 57.81 per 100 Japanese yen from 57.89.