Recouping early losses, the rupee today ended higher by nine paise at 54.68 against the dollar on investor hopes of Parliament giving approval to FDI in mutli-brand retail, amid renewed selling of the US currency.
Forex dealers said a weak dollar overseas and firm local equities also supported the local currency.
The rupee resumed a bit lower at 54.78 a dollar from last close of 54.77 and hit a low of 54.96 at the Interbank Foreign Exchange (Forex) market on some dollar demand from importers and initial hesistancy in local stocks.
However, a late dollar selling by exporters and weakness in dollar overseas aided the rupee to bounce back to a high of 54.59 before settling at 54.68, a gain of nine paise, or 0.16 per cent from its previous close.
"The rupee was mainly helped by beginning of the Parliamentary debate on allowing FDI in multi-brand retail, which boosted investor sentiment," HDFC Bank Chief Dealer Ashtosh Raina said.
Meanwhile, the BSE benchmark Sensex closed 42.80 points higher at 19,348.12.
Foreign Institutional Investors (FIIs) have infused almost USD 22.23 billion in the stock markets till December 3 this current calender year, according to Sebi data.
"The rupee is not able to sustain its gains in spite of all the domestic and international factors supporting it. Tomorrow's voting on FDI in retail in the Parliament will be keenly eyed by the investors," India Forex Advisors Founder & CEO Abhishek Goenka said.
The dollar index was down by 0.15 per cent against its six major rivals as optimism over Greece and an upbeat Chinese manufacturing survey undercut its safe-haven appeal, while the euro rose to a six-week high versus the US currency.
Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said, "The rupee transformed its losses of the first half into solid gains towards the second half on rising foreign capital inflows and a equally firm domestic equity markets".
Meanwhile, rating agency Moody's maintained its negative outlook on the Indian banking sector.
The premium for the forward dollar closed slightly lower on stray receipts by exporters.
The benchmark six-month forward dollar premium payable in May softened to 169-171 paise from last close of 170-171-1/2 paise.
Far-forward contracts maturing in November also eased to 316-318 paise from 317-319 paise.
The RBI has fixed the reference rate for the US dollar at 54.9473 and for euro at 71.7100.
The rupee declined further against the pound sterling to 88.12 from Monday's close of 87.96 and also remained weak