The currency gained early, rising to 61.355 to a dollar, on the back of strong gains in local shares which breached the key 21,000 mark for the first time in nearly three years.
Subsequently, the Indian rupee pared gains as shares turned negative with traders booking profits.
The rupee has been a big recipient of foreign fund inflows as weak data out of the United States pushed back expectations of any tapering of the Federal Reserve's extraordinary stimulus to 2014.
Foreign funds were net buyers of $104.9 million worth of shares on Wednesday, extending their winning streak for 14 sessions on the trot.
Globally, the euro was steady against the dollar on Thursday after disappointing euro zone data pulled it away from a two-year high struck earlier in the session.
"The rupee has been stable and largely tracking the euro. A rate hike on Tuesday will be negative for the rupee," said Naveen Raghuvanshi, associate vice president at Development Credit Bank.
The rupee closed at 61.46/47 per dollar, compared with 61.59/60 on Wednesday. It traded in a 61.355-61.69 band in the session.
A Reuters poll showed that investors grew bullish on most emerging Asian currencies with long positions remaining on the rupee.
The focus is now shifting to the central bank's rate review on Oct. 29 when Governor Raghuram Rajan is expected to raise the repo rate by another 25 basis points.
India's ailing economy is likely to remain under pressure from weak domestic and foreign demand for some time, while uncertainty ahead of elections next year is expected to keep investors and businesses at bay, according to a Reuters poll.
In the offshore non-deliverable forwards, the one-month contract was at 61.96, while the three-month was at 62.93.
In the currency futures market, the most-traded near-month dollar/rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all closed at around 61.48 with a total traded volume of $1.97 billion.