The rupee gained for the second day, adding 32 paise to close at a fresh two-month high of 61.07 against the dollar amid a rise in local equities and sustained capital inflows.
A weak dollar overseas and dollar sales by exporters also supported the rupee. Analysts said the local currency got a boost on reports that the government is in talks to include Indian debt in global indices.
The local currency resumed higher at 61.08 a dollar from the previous close of 61.39 at the interbank foreign exchange market. It moved in a range of 61.01 to 61.37 before ending at 61.07, a rise of 32 paise or 0.52 per cent.
It was the highest closing level for the rupee since ending at 60.88 on August 8. Yesterday, it gained 54 paise.
"The rupee was seen strengthening against the US dollar on account of positive news from the market that the government is in talks with global investment banks for including Indian bonds in global bond indices," said Abhishek Goenka, CEO of India Forex Advisors.
The rupee opened on a strong note, taking cues from the strong positive stock markets globally and strong Asian currencies, Goenka said.
The benchmark 30-share Sensex advanced 255.68 points or 1.26 per cent. Foreign institutional investors bought a net Rs 614.27 crore of shares yesterday, according to provisional data with the stock exchanges.
The dollar index was down 0.15 per cent against a basket of six major global rivals.
"Rupee continued to appreciate for the second day on the news that RBI may ease some restrictions on foreign inflows as India is talking with JP Morgan and others to gain entry to benchmark indexes for emerging market debt in hopes of attracting billions of dollars," said Pramit Brahmbhatt, CEO, Alpari Financial Services (India).
"The trading range for the spot USD-INR pair is expected to be within 60.50 to 62.00." Forward dollar premiums closed slightly lower on receipts by exporters.
The benchmark six-month forward dollar premium payable in March eased to 225-1/2-229-1/2 paise from 227-230 paise previously and far-forward contracts maturing in September softened to 431-1/2-434-1/2 paise from 432-435 paise.
The RBI fixed the reference rate for the dollar at 61.1570 and for the euro at 82.7795.
The rupee remained firm against the pound to end at 97.54 from 97.91 previously and improved further to 82.85 per euro from 83.07. It strengthened against the Japanese yen to 62.12 per 100 yen from 62.78.