The rupee on Thursday recovered by 8 paise to close at 66.91 a dollar on foreign capital inflows and selling of the US currency by banks and exporters.
Fresh bout of dollar selling by exporters and persistent foreign capital inflows largely aided the recovery despite high volatility in domestic equities, a forex dealer said.
The passage of the Constitution Amendment bill on Goods and Services Tax by the Rajya Sabha boosted hopes of more capital flows.
Meanwhile, FPIs continued to invest in stocks with net inflows of around Rs 560 crore (Rs 5.6 billion), provisional BSE data showed.
Unveiling the biggest tax reform since Independence, the Rajya Sabha last night approved the GST bill to replace a raft of different state and local taxes with a single unified value added tax system to turn the country into world's biggest single market and boost growth in Asia's third-largest economy.
The rupee resumed firmly higher at 66.85 from Wednesday's closing value of 66.99 at the Interbank Foreign Exchange market and gained further to 66.84 tracking firm local equities.
But it failed to maintain early momentum and retreated sharply to hit a low of 67.00 briefly due to renewed dollar demand from banks and importers.
However, rupee staged a strong come back towards the fag-end trade and ended firmly higher at 66.91, showing a gain of 8 paise, or 0.12 per cent.
It had dropped by 26 paise yesterday.
The US dollar index, which hit a more than four-month high on Wednesday, was up by 0.15 per cent at 95.67 in early trade.
Meanwhile, the RBI fixed the reference rate for the dollar at 66.9447 and euro at 74.5965.
In cross-currency trades, the rupee bounced back sharply against the pound sterling to finish at 87.94 as compared to 89.40 and rebounded against the euro to end at 74.42 from 75.02 yesterday.
The domestic currency also recouped against the Japanese yen to end at 66.01 per 100 yen from 66.26 earlier.
Image: A bank employee counts bundles of Indian currency. Photographs: Jayanta Dey/Reuters
