After remaining over the 54 level mark for almost two-and- half months, the rupee today gained by 41 paise quoting 53.98 against the American currency in late morning deals.
The rupees surge was supported by sustained selling of dollars by banks and exporters amid persistent capital inflows from foreign funds.
Weakness of dollar in the overseas market also boosted the rupee sentiment, a forex dealer said.
The Indian rupee resumed higher at 54.09 as against the last closing level of 54.39 per dollar at the Interbank Foreign Exchange (Forex) Market.
It moved up further to an over two-and-half month high of 53.86, before quoting 53.98 per dollar at 1050 hrs.
Banks and exporters preferred to reduce their dollar position in view of sustained capital flows from foreign funds into equity market.
Meanwhile, the Indian benchmark BSE-30 share index, Sensex, rose by 123 points or 0.61 per cent to 20,086.59 at 1100 hrs.
In New York market, the US dollar slipped yesterday as plentiful demand from investors at a Spanish debt auction indicated worries about the euro zone had eased.