Buoyed by robust foreign fund inflows and early dollar sales by state-run banks, possibly on behalf of the central bank, the rupee rallied smartly on Thursday, breaching key resistance levels and closed at Rs 45.31/33 per dollar, an unprecedented single session gain of 36 paise.

Resuming on a distinctly firm note at Rs 45.60/62 per dollar from previous closing levels of Rs 45.68/69, the rupee hit intraday highs of Rs 45.24/26 in late morning deals, driven-up by strong dollar supplies from foreign institutional investors after state-run banks led the sharp rally with its active dollar sales, dealers said.

However, dollar demand on dips at regular intervals, pared sharp early gains and the domestic unit settled at Rs 45.31/33 at the closing bell, they added.

"After state-run banks, led by the State Bank of India sold dollars in early trade, other banks joined the dollar sell-off and unwound long overbought dollar positions, following the resumption of strong dollar supplies from FIIs," a forex dealer said.

State-owned banks normally buy/sell dollars on behalf of the Reserve Bank of India to prevent excessive volatility in the currency markets.

Robust investment inflows and receding dollar demand from corporates and importers were the main factors behind the rupee's smart rally and onward surge to new over 38-month highs with sentiments remaining upbeat for further sharp gains on Friday, bankers said.