At 9.45 am, the partially convertible rupee was at 39.66/67 per dollar, easing from an early high of 39.62, its strongest since April 1998, that was also tested on Wednesday before closing at 39.700/705.
"The mood is still rupee bullish, but there are concerns that the stock market's rally may be a little overdone," said the chief dealer with a foreign bank.
India's benchmark share index hit a seventh successive all-time high in early trade.
Data showed foreign funds bought nearly USD 1.9 billion of Indian shares in the five days after last Tuesday's cut in US interest rates, taking their net purchases in 2007 to USD 11.3 billion.
The rupee gained positive cues from other stock markets in Asia that hit record highs.
The rupee has gained more than 11.5 per cent this year, aided by massive capital inflows, to be Asia's best performing currency against the dollar.
Still, the spectre of central bank intervention loomed over the market. The Reserve Bank of India has been widely seen selling rupees in a bid to quell its rise.
The most recent data shows the central bank bought USD 38.1 billion in the first seven months of 2007 to slow the rupee's appreciation.