The rupee on Tuesday gained 29 paise to close at seven-month high of 60.48 against the dollar on sustained selling of the US currency by exporters and banks.
At the Interbank Foreign Exchange (Forex) market, the domestic unit commenced strong at 60.60 a dollar from previous close of 60.77.
Hefty capital inflows helped the rupee to bounce back to a high of 60.44 before settling at almost seven-month high of 60.48, a rise of 29 paise from its previous close.
The last time the rupee closed at this level was on August 1, 2013 when it ended at at 60.43. In three straight sessions of gains, the local currency has spurted by 86 paise.
Meanwhile, the benchmark Sensex on Tuesday closed flat at 22,079.96 points. Foreign institutional investors infused Rs 1,465.62 crore on Monday, as per provisional data available with bourses.
The dollar index was trading up by 0.12 per cent against a basket of six major global rivals.
"Persistent dollar inflows into equity and debt markets are supporting the rupee. Monthly dollar demand is likely to put pressure on the rupee but the positive sentiment on account of relentless capital flows is seen restricting the losses," said Abhishek Goenka, Founder & CEO of India Forex Advisors.
The benchmark six-month premium payable in August moved up to 216-218 paise from 213-215 paise previously. Far forward contracts maturing in February, 2015 also firmed up to 460-462 paise from 454-456 paise.
Pramit Brahmbhatt, CEO, Alpari Financial Services, said: "Rupee continued to trade positively for the third consecutive day backed by the foreign investors who continued to buy into a record-setting rally in domestic shares this month." The RBI fixed the reference rate for dollar at 60.4935 and for the euro at 83.6745.
The rupee continued to rule firm to end at 99.77 against the pound from last close of 100.30. It strengthened to 83.51 per euro from 83.70. It improved to 59.14 per 100 Japanese yen from 59.33.