Snapping a three-day downtrend, the rupee on Thursday recouped early losses and ended the day with a hefty 25 paise gain at 55.66 on heavy dollar sales and fresh capital inflows.
The rupee commenced higher at 55.80 a dollar at the Interbank Foreign Exchange (Forex) market against Wednesday's close of 55.91.
With local stock market displaying weak trends in the morning, the rupee touched over six-week low of 56.03 amid initial dollar demand from importers.
However, the currency later staged a smart recovery to touch a high of 55.62 before settling at 55.66, a gain of 25 paise or 0.45 per cent.
Dealers said foreign institutional investors pumped in funds worth Rs 200 crore (Rs 2 billion) in Indian stocks on Thursday which helped the rupee rise.
In last three days, it had fallen by 39 paise or 0.70
The dollar index, however, was down by 0.12 per cent on Thursday against a basket of six major currencies amid rising speculation that European Central Bank would announce buying of distressed government bonds later in the evening.
Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said," The rupee regained its lost ground of first half towards the fag-end tracking rising global markets due to expectations of unlimited monetary stimulus from the ECB."
The dollar index though remained above the 81 levels but has been maintaining weak note, he said, adding that the expectations of fuel price hike initially in petrol price by Rs 5 from OMCs also supported the rupee.
Meanwhile, the Indian stock market benchmark Sensex ended up by nearly 33 points in choppy trade.