The rupee trimmed its early gains against the US currency, but was still quoted up by 23 paise to 61.42 on bouts of dollar selling by banks and exporters on the back of weak greenback overseas.
Persistent foreign capital inflows into the equity market also supported the rupee sentiment, a forex dealer said.
The rupee resumed sharply higher at 61.10 per dollar as against the last closing level of 61.65 at the Interbank Foreign Exchange (Forex) Market and moved up further to 61.05.
However, it failed to maintain initial gains and was quoted at 61.42 per dollar at 1040hrs on US currency demand from importers.
It moved in a range of 61.05 and 61.43 per dollar during the morning deals.
In New York, the dollar weakened against euro late yesterday after US employment data signalled the Federal Reserve would extend its rate-depressing bond-buying programme to 2014.
Meanwhile, the Indian benchmark Sensex was quoted lower by 97.23 points or 0.47 per cent to 20,767.74 at 1045 hrs.
In early trade, the Indian rupee strengthened by 57 paise to 61.08 against the dollar at the Interbank Foreign Exchange market as the greenback fell against other currencies overseas after the weak US jobs report fuelled hopes the Federal Reserve will keep its stimulus programme in place.
Besides, increased dollar selling by exporters and a higher opening in the domestic equity market also supported the rupee, forex dealers said.
The rupee had lost 13 paise to close at 61.65 against dollar in yesterday's trade on sustained demand from importers and banks as investors awaited US jobs data.
Meanwhile, the BSE benchmark Sensex recovered 40.13 points, or 0.19 per cent, to 20,905.10 in early trade today.