The rupee on Friday gained 17 paise to close at one-week high of 54.77 against the dollar on fresh selling of the US currency by exporters and capital inflows of over $152 million in a firm stock market.
Forex dealers said, however, a firm dollar capped rupee's rise to some extent.
The local currency started the day on a firm note at 54.84 at the Interbank Foreign Exchange market, from its previous close of 54.94.
Later, it moved in a narrow range of 54.75-54.98 before settling at 54.77, a rise of 17 paise, or 0.31 per cent.
"The rupee regained all of its lost ground of previous session on strong equity markets which advanced higher tracking gains in Japan's [ Images ] Nikkei," Alpari Financial Services (India) CEO Pramit Brahmbhatt said.
Foreign institutional investors pumped in over $152 million (Rs 833.40 crore) in the local stock market, as per provisional data on the BSE.
Abhishek Goenka, founder and CEO, India Forex Advisors, said: "On the global front, the US dollar index was seen trading above its two week high as US lawmakers resume the fiscal cliff talks".
The dollar index, a barometer of six major currencies, was up by 0.27 per cent, after reports said US President Barack Obama [ Images ] called an 11th-hour meeting with top Congressional leaders to negotiate a deal to avoid the "fiscal cliff".
The premium for the forward dollar remained weak on continued receipts from exporters. The benchmark six-month forward dollar premium payable in May dropped further to 148-150 paise from Thursday's close of 154-156 paise.
Far-forward contracts maturing in November also tumbled to 288-290 paise from 297-299 paise.
The Reserve Bank of India [ Get Quote ] has fixed the reference rate for the US dollar at 54.8473 and for euro at 72.6298.