The rupee on Tuesday spurted by 54 paise, its biggest single-day gain in more than five months, to close at a one-week high of 71.48 against the US dollar, boosted by positive sentiment over the fiscal situation.
The Reserve Bank's decision to transfer a record Rs 1.76 lakh crore dividend and surplus reserves to the government revived the rupee, forex traders said.
The US currency losing strength against major global rivals also boosted the rupee sentiment. The US dollar index, which measures its strength against six global peers, dropped 0.18 per cent to 97.90 on expectations that the US-China trade talks will resume soon.
Chinese currency yuan, however, fell further to more than 11-year low against the dollar.
The Indian rupee gained probably on the back of stable fiscal situation, Sunil Sharma, Chief Investment Officer, Sanctum Wealth Management, said.
At the interbank foreign exchange market, the rupee opened higher at 71.70 a dollar. It gained further to touch the day's high of 71.45. The local unit finally settled at 71.48, up by 54 paise - the biggest single-day gain since March 18, 2019.
The rupee had declined by 36 paise to more than nine-month low of 72.02 on Monday.
Governor Shaktikanta Das-led RBI central board gave its nod for transferring to the government a sum of Rs 1,76,051 crore comprising Rs 1,23,414 crore of surplus for the year 2018-19 and Rs 52,637 crore of excess provisions identified as per the revised Economic Capital Framework (ECF), the apex bank said in a statement on Monday.
The receipts from the RBI will give a fillip to the government's efforts to boost the economy from a five-year low as well as meet the fiscal deficit target.
Cautious optimism over US-China trade talks after US President Trump said his trade negotiators had received two "very good calls" from Beijing also influenced the local currency, dealers said.
Rising for a third straight session, the BSE Sensex ended 147.15 points, or 0.39 per cent, higher at 37,641.27.
Meanwhile, the global crude benchmark Brent Futures rose 1.16 per cent to trade at USD 59.38 per barrel on Tuesday.
Meanwhile, the 10-year Indian government bond yield was up at 6.51 per cent.
Foreign institutional investors (FIIs) remained net sellers in the capital market, pulling out Rs 923.94 crore on Tuesday, according to provisional exchange data.