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The Indian rupee gained 70 paise, the most in one and a half months, to 62.41 against the US dollar today amid a sharp rise in local equities and dollar sales by exporters and banks.
The Indian rupee rose for the third day, aided by increased capital inflows and RBI Governor Raghuram Rajan's comments on Thursday that there is no fundamental reason for the currency to fall again.
The dollar index, a gauge of the US currency against six major global rivals, was down 0.08 per cent in the wake of weak economic data and dovish testimony by Federal Reserve chief nominee Janet Yellen, which indicated tapering of the stimulus programme may be delayed.
At the interbank foreign exchange market, the rupee opened higher at 62.85 a dollar from the previous close of 63.11 and fell to the day's low of 62.92.
Indian rupee bounced back to 62.38 before ending at 62.41, up 70 paise, or 1.11 per cent. It was the biggest gain for the rupee since October 3, when it added 73 paise to 61.73.
"It was yet another strong session for the Indian rupee which was mainly supported by Janet Yellen's comments, rally in the local stock markets and last week's optimistic comments by Raghuram Rajan," said Abhishek Goenka, CEO of India Forex Advisors.
"Yellen...continued to be dovish in her stance, which helped the stock markets across the world to rally and helped all the major Asian currencies to post gains," he added.
The 30-share benchmark Sensex surged 451.32 points or 2.21 per cent, the biggest gain in a month. Overseas investors infused a net Rs 970.03 crore in shares last Thursday, according to provisional data with the stock exchanges.
"Local equities rose more than 2 per cent...tracking gains in other Asian markets, cheered by the prospect of extended stimulus in the US and real economic reform in China," said Pramit Brahmbhatt, CEO of Alpari Financial Services (India). "Taking cues from this, rupee appreciated over 1 percent."
Rajan had said the RBI would inject Rs 8,000 crore by purchasing bonds today to improve liquidity in the