After suffering its worst loss in two months yesterday, the Indian rupee's recovery today was also aided by fresh US dollar selling by exporters and some banks on the back of a weak American currency overseas, said forex traders.
The US dollar index was down 0.07 per cent against a basket of six major global rivals.
At the Interbank Foreign Exchange (Forex) market, the domestic currency resumed higher at 61.15 a dollar from last close of 61.34, but declined to a low of 61.25.
Later, it rebounded to settle at the day's high of 60.89, showing a rise of 45 paise -- its biggest gain since March 6, 2014 when it was shot up by 64 paise or 0.73 per cent. Yesterday, it had dipped 39 paise or 0.64 per cent.
For the week, the rupee rose 30 paise against dollar.
As per provisional exchange data, FIIs pumped in over Rs 4,200 crore today in the capital market segment alone.
"Heavy capital inflows linked to government stake sale in the bank helped the rupee register robust gains. Inflows are also happening in the debt market," said Ashtosh Raina, Head of Foreign-Exchange Trading at HDFC Bank.
The government today sold 9 per cent stake held through SUUTI in Axis Bank through a block deal.
Besides, the CPSE Exchange Traded Fund (ETF) has so far garnered cumulative bids of over Rs 4,000 crore boosted by strong demand from overseas investors, sources said.
The Indian benchmark S&P BSE Sensex today closed slightly better by 13.66 points, or 0.06 per cent.
Pramit Brahmbhatt, CEO, Alpari Financial Services, (India) said: "Rupee also strengthened today taking cues from the local equity markets which traded positively with the help of FIIs. The trading range for the Spot USD/INR pair is expected to be within 60.50 to 62.00."
Meanwhile, forward dollar premium declined further on consistent receipts by exporters.
The benchmark six-month premium payable in August moved down to 220-222 paise from 222-224 paise previously.
Far forward contracts maturing in February, 2015 also eased to 464-466 paise from 466.5-468.5 paise.
The RBI fixed the reference rate for dollar at 61.0465 for the euro at 84.1755.
The rupee shot up further to 100.53 paise against the pound from 101.27 and also hardened to 84.03 per euro from 84.47 previously. It remained firm to end at 59.53 per 100 Japanese yen from 59.86.