The rupee spurted by 40 paise, its biggest single-day gain in over three months, to settle at a more than two-week high of 74.66 against the US dollar on Friday on hopes of a diplomatic solution to the East-West standoff over Ukraine.
A fall in crude oil prices also supported the local currency, analysts said.
At the interbank forex market, the local unit opened at 75.03 against the greenback and witnessed an intra-day high of 74.60 and a low of 75.05.
The rupee settled at 74.66, registering a rise of 40 paise or 0.53 per cent over its previous close of 75.06. The rupee had closed the session on Thursday at 75.11 (provisionally) but later settled at 75.06.
The proposed US-Russia talks spurred optimism about the volatile geopolitical situation in Ukraine, said Dilip Parmar, Research Analyst, HDFC Securities.
''Rupee recouped previous week and most of the current month losses amid long unwinding in dollar, lower crude oil prices and expectation of dollar inflows from LIC IPO,'' Parmar said, adding that foreign fund outflows and risk-averse sentiments could limit the gains in the rupee.
During the week, the rupee has appreciated 70 paise against the American currency.
''The rupee has strengthened by around 0.50 per cent in Friday's session, amid rising hopes of a diplomatic solution to the Russia-Ukraine crisis,'' Sugandha Sachdeva, Vice President - Commodity and Currency Research, Religare Broking Ltd.
Crude prices have also nursed steep losses after eight straight weeks of gains, as the key risk to supply appears to fade for a while, which has further supported the sentiments for the domestic currency, Sachdeva said.
Besides, minutes of the recent Fed meeting have been slightly dovish, which has cooled-off bets for an aggressive pace of rate hike this year-another tailwind for the local unit, Sachdeva added.
''Markets heaved further sigh of relief as Russia said they were withdrawing more tanks, hardware from near Ukraine, this morning.
''Any diplomatic break-through during the coming week will help the USDINR pair strengthen further towards 74.25/73.80 levels. A reversal towards 75.76 will now be seen only above 75.40 levels,'' according to Emkay Global Financial Services.
On the domestic equity market front, the BSE Sensex ended 59.04 points or 0.10 per cent lower at 57,832.97, while the broader NSE Nifty fell 28.30 points or 0.16 per cent to 17,276.30.
Meanwhile, the dollar index, which measures the greenback's strength against a basket of six currencies, advanced 0.05 per cent to 95.84.
Brent crude futures, the global oil benchmark, was trading 1.68 per cent lower at USD 91.41 per barrel.
Foreign institutional investors remained net sellers in the capital market on Thursday as they offloaded shares worth Rs 1,242.10 crore, as per stock exchange data.
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