The rupee on Friday staged a resounding comeback after an overnight setback and ended higher by a whopping 24 paise at 66.61 on fresh dollar unwinding from banks and exporters.
The domestic currency and financial markets showed remarkable resilience and stability a day after the massive plunge following the news of surgical strikes by India on terror launch pads across LoC.
The rupee had suffered its biggest single-day fall in three months on Thursday.
Domestic stocks also ended in a positive zone despite concern of global financial contagion from Deutsche Bank's woes.
Forex dealers said apart from selling of the American currency by exporters and banks, expectations of strong capital inflows coming into the country in the long-run due to strong economic fundamentals largely supported the rupee.
Though active trading was held in check due to simmering tensions in the aftermath of 'surgical strikes' alongside RBI's fourth bi-monthly policy statement scheduled to be announced on October 4.
Despite a flat start at the Interbank Foreign Exchange (Forex) market, the home currency staged a strong rebound to hit a fresh intra-day high of 66.57 before ending at 66.61, showing a solid gain of 24 paise, or 0.36 per cent.
It briefly touched a low of 66.86 in early trade.
The newly constituted six-member Monetary Policy Committee (MPC) headed by RBI Governor Urjit Patel will hold its first meeting on October 3 and 4 to decided on key interest rate.
"FII inflow is likely to be robust in the medium to long-term due to country's strong macroeconomic fundamentals aided by good monsoon and better-than-expected corporate earnings, a forex dealer said.
Meanwhile, the greenback moved higher against the other major currencies ahead of the release of US economic reports due later in the day after mixed data on Thursday painted a rather mixed picture.
The dollar index was trading up by 0.35 per cent at 95.77 as against a basket of six currencies in late afternoon trade.
The RBI today fixed the reference rate for the dollar at 66.65 and euro at 74.75.
In cross-currency trades, the rupee rebounded sharply against the pound sterling to settle at 86.41 as compared to 87.05 and also recouped against the euro to end at 74.40 from 75.00 on Thursday.
It, however, continued to rule firm against the Japanese yen and finished at 65.83 from 65.89 per 100 yens.
Foreign portfolio investors (FPIs) remained net buyers for the second-straight day and bought equities worth a net Rs 3,413.37 crore on Thursday as per provisional data from exchanges despite market turmoil.
The flagship BSE Sensex gained 38.43 points to end at 27,865.96, while the broader Nifty moved up 19.90 points at 8,611.15.
In the forward market, premium for dollar remained under pressure on sustained receiving by exporters.
The benchmark six-month premium for February moved down to 157-159 paise from 158-160 paise and the forward August 2017 contract dropped to 341-343 paise as compared to 344-346 paise earlier.
Crude prices extended gains after OPEC decided to cut oil output for the first time since 2008 amid uncertainties regarding the implementation mechanism and the ramp up of output by Iran, Libya and Nigeria.
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