Buoyed by finance secretary Montek Singh Ahluwalia's statement that the rupee will stabilise at 42, the local currency opened at 41.95/42.05, stronger than its previous quote of 42.14/17. As reports of the yen recovering to 136 to the greenback from 142 filtered in, fears of another Asian crisis subsided. With corporates encashing their dollars, the rupee continued to post gains to reach an intra-day high of 41.88.

The initial strengthening in the spot rupee saw exporters rushing in to receive premiums and a few importers cancelling their forward contracts.At 41.88, the State Bank of India (SBI) started buying dollars.

"The SBI made dollar purchases all the way up to 42.15/16," dealers said. Towards the close of trades, the rupee came under more pressure as banks bid for the dollar aggressively to cover theirshort positions. The rupee ended at 42.20/21. Cash/spot closed at 6/8 paise while cash/tom closed at 0.15/0.75 paise.

The rupee's gain in early morning trades helped forwards come off their previous highs. The six-month annualised forward cover closed softer at 11.57 per cent, compared with its overnight close of 12.33 per cent.

"Exporters rushed in to encash their dollars", Mecklai Financial Services senior vice president KN Dey said. Dealers added that a few importers were also seen cancelling their forward contracts.

March dollars closed at 375/380 paise from their Wednesday's finish of 390/395 paise, April at 409/413 paise (425/430 paise) and May at 440/445 paise (457/463 paise). The one-month annualised forward premium ended at 14.56 per cent (15.12 per cent), two months at 13.23 per cent (14.17 per cent) and three months at 12.44 per cent (13.18 per cent).