The rupee on Thursday rose by a whopping 35 paise to close at 56.80 against the dollar amid hopes that Prime Minister Manmohan Singh who himself has taken over the Finance portfolio will initiate steps to prop up the economy and halt the currency's slide.
The rupee resumed higher at the Interbank Foreign Exchange market but fell to a intra-day low of 57.10.
It soon staged a smart recovery on dollar selling by exporters and some banks on expectations of steps by the Prime Minister amid top officials reviewing the economic situation.
The rupee closed at 56.80, showing a rise 35 paise or 0.61 per cent, its biggest percentage gain in two weeks.
FIIs sold stocks worth Rs 1,112.63 crore today while domestic institutions bought Rs 772.37 crore shares as per provisional data from stock exchanges.
"The rupee appreciated as there was not much of demand for dollars coupled with selling of greenback from foreign banks.
"The PM's statement regarding revival of animal spirit in economy sustained the sentiment," N S Venkatesh, Head of Treasury, IDBI Bank said.
Hemal Doshi, Currency Strategist said there was no sign of intervention by RBI on Thursday.
The rupee, which snapped a two-day losing string lost 14 paise in the last two sessions, has shed around 7 per cent value in 2012 - the worst performance among Asian rivals.
The dollar index, a gauge of six major rivals, on Thursday was up by nearly 0.09 per cent and the New York crude oil was trading above $80 a barrel in European market on Thursday.
Meanwhile, the Indian stock market benchmark Sensex rose for the third straight day today edging up 23 points to close at 16,990.76.
According to Abhishek Goenka, Founder & CEO, India Forex Advisors, the upcoming EU summit would be closely eyed by the investors across the globe to get the further clues on the ongoing debt crisis.
"As it's been quite long since the Euro crisis has evolved in 2010, still there is a lack of consensus among the leaders.
"With no major expectation from the EU summit, we expect the rupee to remain weak against the dollar and reach new low against the dollar," he said.
The premium for the forward dollar reacted downwards on fresh receivings by exporters.
The benchmark six-month forward dollar premium payable in November settled down at 152-154 paise from Wednesday's close of 160-162 paise.
The premium for far-forward contracts maturing in May also finished lower at 301-303 paise from 309-311 paise.
The RBI fixed the reference rate for the US dollar at 56.9195 and for euro at 71.2483.
The rupee bounced back against the pound sterling to end at 88.41 from Wednesday's close of 89.26 and also rebounded to 70.72 per euro from 71.38 previously.