The rupee appreciated by 29 paise to end at 81.53 (provisional) against the US dollar on Tuesday as heavy buying in domestic equities and weakness in the greenback strengthened investor sentiment.
However, rising crude prices in the international market capped the rupee's gain, forex dealers said.
At the interbank forex market, the local unit opened strong at 81.66 against the greenback. It witnessed an intra-day high of 81.36 and a low of 81.66 during the session.
It finally ended at 81.53, up 29 paise from its previous close. In the previous session, the rupee had settled paise 42 lower at 81.82 against the dollar.
"Rupee retraced from its all-time lows after the RBI raised rates by 50 bps. The dollar retraced from high levels after the manufacturing PMI number released from the US came below estimates.
"Volatility in major crosses continues to remain high as updates on the change in economic policies keep market participants on the edge. Today, the focus will be on the factory order number to gauge a view for the dollar. We expect the USD/INR (Spot) to quote in the range of 81.20 and 82.05," Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services, said.
In the domestic equity market, the 30-share BSE Sensex jumped 1,276.66 points or 2.25 per cent to close at 58,065.47, and the broader NSE Nifty rose 386.95 points or 2.29 per cent to 17,274.30.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.49 per cent to 111.20.
Brent crude futures, the global oil benchmark, rose 0.82 per cent to USD 89.59 per barrel.
Foreign institutional investors (FIIs) were net buyers in the capital markets as they bought shares worth Rs 590 crore on Monday, according to exchange data.
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