The rupee on Tuesday bounced back from day's low level to close at 54.43, up 18 paise, on the back of dollar sales by exporters and inflows from foreign investors worth $30 million in stocks.
At the Interbank Foreign Exchange Market, the domestic unit commenced lower at 54.70 as against overnight close of 54.61.
It immediately touched an over 8-week low of 54.7850 on sustained dollar demand from importers.
As global investors waited for US Presidential polls, uncertainty over Greece's next aid payment kept all currencies in tight leash, said traders.
A good set of economic data from key European nations, however, helped the Euro climb above $1.28 level later, helping the rupee reverse losses as well.
Renewed dollar selling by exporters and firm local equities aided the rupee's recovery and it touched a high of 54.35 a dollar.
It finally concluded at 54.43 -- up 18 paise or 0.33 per cent over Monday's close of 54.61.
As per provisional data from BSE, FIIs bought Indian stocks worth Rs 174 crore (approx. $30 million) on a net level.
The dollar index was down by 0.09 per cent against a basket of currencies ahead of the US election later on Tuesday.
"Rupee was seen getting some support from dollar selling and a slight recovery in the Euro.
"The downside in rupee halted after the Spanish and the Italian services PMI data came out better-than-expected," said Abhishek Goenka, Founder & CEO, India Forex Advisors.
Analysts see the rupee making a sustained bounce back soon and a report by Bank of America Merrill Lynch said it is expected to touch 51-level against US dollar by December.
Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said," The rupee regained some of its lost ground after Tuesday's sharp weakness on capital inflows and corporate selling by foreign banks."
Meanwhile, rising for fifth straight day, the Indian stock market benchmark Sensex on Tuesday closed 54 points higher at one-month high of 18,817.38.
On Monday, the rupee plunged by 80 paise to close at more than eight-week low of 54.61 on massive dollar demand from banks and importers.
The premium for the forward dollar today remained weak on sustained receipts by exporters.
The benchmark six-month forward dollar premium payable in April ended slightly lower at 161-162 paise from Monday's close of 162-163-1/2 paise.
Far-forward contracts maturing in October also moved down to 294-296 paise from 296-298-1/2 paise.
The RBI has fixed the reference rate for the US dollar at 54.5955 and for euro at 69.8635.
The rupee also recovered against the pound sterling to 87.01 from overnight close of 87.20 and also recouped losses against the euro to 69.66 from 69.84.
It bounced back as well against the Japanese yen to 67.88 per 100 yen from last close of 68.03.