Also, continuing rise in local equities and sustained inflows by FPIs/FIIs helped the rupee to strengthen, brokers said.
At the Interbank Foreign Exchange (Forex) market, the domestic currency commenced better at 60.64 a dollar from previous close of 60.68 and immediately touched a low of 60.69.
Later, it gradually bounced back to a one-month high of 60.33 before surrending some of its gains to settle at 60.49, a rise of 19 paise or 0.31 per cent. In the past four trading days, rupee had dipped by 25 paise or 0.41 per cent.
"The Indian rupee was seen appreciating against the US dollar today. The volatility in the market suddenly increased after the news that Ukraine and Russia have agreed for a permanent ceasefire in Donbass region.
"Easing geopolitical tensions globally have reduced pressure on Indian rupee. On the domestic front, Indian stock markets continued to attract foreign flows. Overall Indian rupee made a low of 60.68 and a high of 60.34 before closing the session at 60.49 levels," India Forex said in a note.
The benchmark S&P BSE Sensex extended its rally for the ninth straight session and ended higher by 120.55 points at 27,139.94.
FPIs/FIIs injected USD 144.05 million yesterday, as per Sebi data.
The dollar index, which was up at over 83 to 52-high, was trading down by 0.12 against six rival currencies.
Pramit Brahmbhatt, Veracity Group CEO said, "Today rupee appreciated over quarter per cent as local equities continued its bull run, closing at all time high. Also the Japanese banks were seen selling dollars, helped rupee to appreciate further. Dollar index is trading weak for the day which further aided rupee's rise."
In forward market today, premium recovered on fresh payments from banks and corporates.
The benchmark six-month premium payable in February edged up to 246-248 paise from 245-247 paise previously.
Far-forward contracts maturing in August, 2015 also rose to 493-495 paise from 490-492 paise.
The Reserve Bank of India fixed the reference rate for dollar at 60.5445 and for the euro at 79.5434.
The rupee improved further against the pound to 99.59 from Tuesday's close of 100.33 and continued its rally to end at 57.59 per 100 Japanese yen from 57.83.
It, however, remained weak against the euro to 59.59 from 79.57 previously.