Tracking gains in euro, the rupee on Tuesday erased early losses and ended two paise higher at 55.67 against the US dollar amid fresh capital inflows into stocks.
The rupee opened lower at 55.81 a dollar at the Interbank Foreign Exchange market against 55.69 on Monday and touched a low of 55.88 on continued month-end dollar demand from importers, mainly oil refiners.
However, it bounced back on late fresh dollar selling by exporters following weakness in dollar overseas on hopes that US Federal Reserve Chairman Ben Bernanke will hint at easing monetary policy when he addresses a high-profile economic forum in Jackson Hole, Wyoming, on Friday.
This helped euro rise 0.4 per cent to $1.25, close to last week's peak.
Soon after the rupee logged a high of 55.61 before settling at 55.67, up two paise over Monday's close.
In last two days, it had fallen by 43 paise or 0.78 per cent.
Foreign institutional investors pumped around Rs 100 crore (Rs 1 billion) in stocks on Tuesday.
The Indian stock market benchmark Sensex on Monday, however, ended lower by 47.10 points, extending a three-day rout against the US dollar.
"The rupee was seen weakening to after consolidating from the last few days.
"It was unable to break the resistance of 55.80 levels but the recovery in Euro helped the rupee to ease in the later session," said Abhishek Goenka, Founder & CEO, India Forex Advisors.
Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said the rupee regained most of its lost strengths on weak dollar index which also edged lower on better-than-targeted bond sales by Spain.
The dollar index was down by 0.22 per cent against six major global currencies.