The sentiment in favour of the rupee also firmed up on sustained capital inflows and a sharp fall in dollar traded in the overseas markets, a forex dealer said, adding that downbeat fiscal deficit data failed to temper the enthusiasm.
Government's fiscal deficit in the 10 months through January 2014 has overshot revised estimates of Rs 5.24 lakh crore for this fiscal provided by Finance Minister P Chidambaram in his interim Budget last week. After markets closed, data also showed that the Indian economy grew 4.7 per cent in third quarter ending December 2013.
At the Interbank Foreign Exchange (Forex) market, the domestic currency commenced weak at 62.10 and declined further to a low of 62.14 on month-end dollar demand from importers, mainly oil refiners.
However, it rebounded on renewed dollar selling by exporters and firm local stocks to settle at the day's high of 61.75, showing a rise of 23 paise or 0.37 per cent.
Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said: "Dollar demand from oil importers forced the rupee to depreciate earlier, but in the second session it appreciated with the help of strong local. Also, Euro and Pound gained."
A sluggish dollar overseas boosted the rupee value as the dollar index was down by 0.47 per cent against a basket of six major global rivals, ahead of key economic data.
For the week, the rupee gained 37 paise since ending at 62.12 on February 21. This helped the local currency to wrap up the month, which saw interim budget, with a 93 paise rise. The gain in February is the highest since 110-paise surge logged in October 2013.
The Sensex today closed up over 133 points, or 0.63 per cent. Foreign Institutional Investors (FIIs) injected USD 91.44 million on Wednesday as per Sebi data. Markets were closed on Thursday.
Abhishek Goenka, Founder and CEO, India Forex Advisors, said: "It was a positive session for the rupee, supported by weak dollar index and strong euro. During the day, Euro zone's inflation data was released which was more than expectations, pushing euro near its two month high against the US dollar."
Meanwhile, forward dollar premium declined on sustained receipts from exporters.
The benchmark six-month premium payable in August dropped to 257-259 paise from 260.5-262.5 paise.
Far forward contracts maturing in February also softened to 504.5-506.5 paise from 507.5-509.5 paise previously.
The RBI fixed the reference rate for dollar at 62.0720 and for the euro at 85.0285.
The rupee recovered against the pound to 103.11 from last close of 103.41, while fell back slightly to 85.15 per euro from 85.14. It also turned negative to finish at 60.60 per 100 Japanese yen from 60.56.