The rupee on Friday gained a staggering 68 paise to 53.71 to hit a two-and-a-half-month high on sustained selling of dollar by exporters, after partial deregulation of diesel prices.
This is the second biggest rise since September 21 last year, when rupee had gained by 93 paise, or 1.71 per cent.
The local currency commenced the day on a firm note at 54.09 against previous close of 54.39 at the Interbank Foreign Exchange (Forex) market. After brief weakness during the day, it settled at 53.71, the highest level since November 1, 2012, registering gains of 68 paise, or 1.25 per cent.
"Rupee has appreciated because of the fiscal measures taken up by the government in the recent past like diesel price deregulation. Also, a risk-on mode in the global economy also contributed to Friday's movement, which prompted FII flows into domestic market," Indian Overseas Bank Head (Treasury) B S Keshava Murthy said.
Forex dealers said consistent foreign funds inflow into local equities also boosted the rupee.
Foreign institutional investors pumped in $217.03 million (Rs 1,165.69 crore) into local stocks on Friday, according to provisional BSE data.
Hemal Doshi, chief currency strategist of Geojit Comtrade said: "On the global front, all critical support for dollar has broken with strengthening of euro, that supported the domestic currency today".
The dollar index, consisting of six major global rivals, was up by 0.09 pct while New York crude oil was quoting above $94 a barrel in Europe on Friday.