Weakness in the dollar index, which was down by 0.10 per cent against a basket of major global rivals, also helped the rupee gain after a 59 paise rise yesterday when the RBI unexpectedly increased the repo rate.
At the Interbank Foreign Exchange (Forex) market, the local unit resumed strong at 62.28 a dollar from last close of 62.51. It rose further to a high of 62.1050 on initial rise in domestic stocks.
However, tracking volatility in stocks, the rupee later fell back on dollar demand from importers, mainly oil refiners, to meet their month-end requirements.
It touched the day's low low of 62.52 before settling at 62.41, a rise of 10 paise or 0.16 per cent over Tuesday.
Pramit Brahmbhatt, CEO, Alpari Financial Services, India said: "Rupee extended its gain today and traded near 62-levels...overall signs of improvement in the US economy suggest Fed officials will stay on track to cut monthly buys."
Fears of a fresh cut in the US central bank's monthly bond buying programme are among the reasons that have dragged down emerging market assets recently. The Fed has already cut its purchases by USD 10 billion to USD 75 billion.
"Some portion of the weakness can also be attributed to the rising talks about (another) USD 10 billion reduction in the asset purchase program at the FOMC meet which will end today. After the RBI policy, the FOMC meeting will be the most significant event which will be giving a direction to the USD-INR pair," said Abhishek Goenka, Founder and CEO, India Forex Advisors.
The Indian benchmark S&P BSE Sensex today washed out initial gains on late profit-booking and closed down by 36.21 points.
FIIs pumped in Rs 250 crore in equity markets today after pulling out over Rs 1,250 crore yesterday.
Forward dollar premiums closed weak on fresh receipts from exporters.
The benchmark six-month forward dollar premium payable in June ended down at 211-213 paise from 213-215 paise previously.
Far forward contracts maturing in December dropped to 456-1/2-458-1/2 paise from 460-1/2-462-1/2 paise.
The RBI fixed the reference rate for the dollar at 62.2005 and for the euro at 84.9649.
The rupee improved further to 103.31 against the pound from last close of 103.59. It also edged up to 85.25 per euro from 85.33.
The rupee, however, fell back to 60.77 per 100 Japanese yen from 60.63.