Staging a smart recovery, the rupee on Wednesday appreciated by 11 paise to close at one-week high of 54.84 on sustained selling of the US dollar by exporters and capital inflows worth over $135 million.
Forex dealers said a firm rise in local equities and sluggish dollar overseas also boosted the sentiment in rupee's favour.
The local unit opened lower at 55.07 against the dollar at the Interbank Foreign Exchange (Forex) market from Monday's close of 54.95 and fell further to a low of 55.10 on month-end dollar demand from importers, mainly oil refiners.
However, firm local stocks amid late dollar selling by exporters helped the rupee to bounce back to a high of 54.81 before concluding at 54.84, a net rise of 11 paise, or 0.20 per cent, from its previous closing.
The BSE benchmark Sensex on Wednesday closed higher by 162.37 points at 19,417.46.
"The rupee extended its gaining momentum for the second straight session amid thinly traded volumes tracking huge gains in domestic equity markets and rising capital inflows," said Pramit Brahmbhatt, CEO, Alpari Financial Services (India).
The Commerce Ministry also approved a package of incentives to boost exports, which supported the rupee, he said.