At the Interbank Foreign Exchange (Forex) market, the domestic unit started strong at 60.90 a dollar from last Friday's close of 61.18.
It later moved in a wide range of 60.8750 and 61.1650 before concluding at 60.93 a rise of 25 paise or 0.41 per cent. This is the rupee's best single-day rise since July 11 (up 26 paise).
In the previous two sessions, the rupee had plunged by 112 paise or 1.86 per cent as dollar strengthened on economic recovery and the US Fed indirectly trimming dollar supply to the market by lowering its level of monthly bond purchases.
The rupee had closed at 61.18, a four-month low, on Friday after dropping 63 paise against the US unit.
Besides dollar sales and rise in local equities, the rupee sentiment improved as the country's foreign exchange kitty surged USD 2.714 billion to USD 320.564 billion on a healthy increase in the core currency assets.
Pramit Brahmbhatt, CEO, Veracity Group said: "Rupee has started the week on a positive note. Local equities also closed up by almost one per cent for the day which further helped rupee. Tomorrow RBI's credit policy will dictate the near term trend for the USD/INR pair. The trading range for the spot rupee is expected to be within 60.50 to 61.50."
The Indian benchmark S&P Sensex today rebounded by over 242 points, or 0.95 per cent. FIIs had pulled out Rs 1,072.96 crore yesterday, as per provisional data with stock exchanges.
Global currencies were mixed. The dollar index was quoting higher by 0.06 per cent against its major global rivals. The Euro slipped against the dollar in Asia following news of a bailout for a crisis-hit Portuguese bank.
The dollar was mixed against other Asia-Pacific currencies.
"The rupee's initial gains were supported by the strong Asian currencies, positive opening in the domestic stock markets and slight weakness in the dollar overseas. Last week's US non-farm payrolls data was not encouraging which led dollar to post slight losses against major peers. The RBI policy will be closely watched for further cues," said Abhishek Goenka, Founder & CEO, India Forex Advisors.
In the forward market, premium declined on fresh receipts by exporters.
The benchmark six-month premium payable in January closed lower at 246-248 paise from last Friday's close of 249.5-251.5 paise and far-forward contracts maturing in July, 2015 also settled weak at 485.5-487.5 paise from 490-492 paise.
The Reserve Bank of India fixed the reference rate for dollar at 61.0187 and for the euro at 81.9061.
The rupee also recouped against the pound to 102.53 from 102.97 previously and turned positive to end at 59.39 per 100 Japanese yen from 59.43.
It recovered against the euro to 81.75 from 81.93.