Fresh selling of dollars by banks and exporters in view of good foreign capital inflows coupled with lower dollar overseas boosted the rupee, say forex dealers.
The rupee resumed higher at 60.06 per dollar as against the last closing level of 60.39 per dollar at the Interbank Foreign Exchange (Forex).
It firmed up further to 59.85 per dollar, before ending at 60.08 per dollar -- a gain of 31 paise or 0.51 per cent. It hovered in a range of 59.85 to 60.19 during the day.
The rupee's rise today was the biggest since May 15.
The dollar index, a gauge of six major global rivals, was down by 0.44 per cent today.
"US Fed has once again downgraded its economic outlook for the US economy, which is a hint that interest rate hikes are going to be delayed further. As a result, US Dollar weakened against major currencies in the Asian markets and that has spilled over into strength for the local unit," said Anindya Banerjee, currency analyst, Kotak Securities.
Yesterday, the US Federal Reserve signalled that rising inflation won't trigger an interest rate rise any time soon, while Iraq turmoil sent oil futures to highest this year.
Crude oil rose in Asia today following a surprisingly bullish US stockpiles report and on rising concerns that turmoil in Iraq will disrupt Middle East supplies. Benchmark for West Texas Intermediate rose and the one for Brent crude variety hit a nine-month high.
Meanwhile, the Indian equity benchmark Sensex failed to maintain initial gains and ended lower by 44.45 points, or 0.18 per cent, at 25,201.80.
Pramit Brahmbhatt, Veracity Group CEO said: "Dollar index is trading three-week low and is heading towards to post its first weekly loss after gaining for six consecutive weeks. The trading range for the spot rupee is expected to be within 59.50 to 60.50."
The premium for forward dollar rose on fresh payments from banks and corporates.
The benchmark six-month premium payable in November moved up to 223-225 paise from 222.5-224.5 paise previously.
Far-forward contracts maturing in May, 2015 firmed up to 466.5-468.5 paise as against 460-462 paise yesterday.
The Reserve Bank of India fixed the reference rate for dollar at 60.0031 and for the euro at 81.7106.
The rupee gained marginally against the pound to 102.32 from yesterday's close of 102.33 and rebounded to finish at 81.88 per euro from 81.93. It also recovered to 59.01 per 100 Japanese yen from 59.09.