Moving in tandem with stocks, the rupee today erased initial losses and closed higher by 3 paise at 62.53 against the dollar.
Dealers in foreign exchange said late dollar selling by exporters and some banks aided the rupee rally for the second day in a row.
Dollar doing better in the overseas markets and sustained capital outflows restricted the rupee rise, a forex dealer said.
At the Interbank Foreign Exchange (Forex) market, the domestic currency commenced weak at 62.81 a dollar from last close of 62.56 and immediately touched a low of 62.83 due to sluggish local stocks and persistent selling by foreign funds.
The local currency later bounced back to a high of 62.50 in tune with rise in local equities and dollar selling by exporters. It concluded the day at 62.53, a net rise of three paise.
Yesterday, the rupee had gained 12 paise.
The benchmark S&P BSE Sensex, which was down by nearly 250 points at mid-session, recovered and closed almost stable at 20,211.93.
According to per Sebi data, foreign institutional investors (FIIs) sold shares worth USD 133.24 million.
The dollar index was up by 0.04 pct against a basket of six major global currencies.
Forward dollar premiums continued to rule weak on sustained payments by exporters.
The benchmark six-month forward dollar premium payable in July declined to 247-249 paise from 250.5-252.5 paise and far forward contracts maturing in January dropped further to 487.5-489.5 paise from 493-495 paise previously.
The RBI fixed the reference rate for the dollar at 62.6815 and for the euro at 84.78.
The rupee improved further to 102.08 against the pound from 102.27 while ruled stable against the euro to 84.51.
It, however, remained weak to end at 61.70 per 100 Japanese yen from 61.50.