The rupee also recouped against the pound sterling to end at 85.01 from overnight close of 85.15 and also rebounded against the Japanese yen to 67.04 per 100 yen from 67.38.
The big test will come at the end of March when the fiscal year ends and banks tend to hold on to cash.
It touched a low of 53.16 on continued dollar demand from importers and some weakness in stocks in the initial stage.
Forex experts said the dollar index, a gauge of six major global rivals, was marginally up ahead of US non-farm payroll data later in the evening while New York crude oil was quoting below USD 91 a barrel in Europe today.
Noting that Indian firms face a high risk of mark-to-market losses due to a volatile forex market, a brokerage firm has named telecom major Reliance Communications and auto giant Tata Motors among five blue-chip companies estimated to have suffered the most during 2008-09.
Top performers were PowerGrid, ONGC, Ultratech Cement, Asian Paint, Kotak Bank and Titan. Nifty settled with a gain of 232.40 points at 14,761.55.
The rupee had lost 8 paise to end at 55.44 against the dollar in Monday's session on fresh dollar demand from importers.
The US dollar index was up by 0.16 per cent at 96.53.
The Indian unit opened sharply higher at 64.80 as against Wednesday's closing level of 65.12.
Some weakness in the local stock market amid a rising trend pared rupee's early gains, forex dealers said.
The rupee rose by 7 paise to Rs 55.68 against the US dollar in early trade today on the Interbank Foreign Exchange as the American currency weakened against euro overseas.
Forex dealers said dollar selling by exporters and a higher opening in the equity market also supported the rupee.
The rupee on Thursday lost 25 paise to 55.72 against the US dollar in early trade at the InterbankForeign Exchange market as the American currency gained strength against other currencies overseas.
The domestic currency has fallen past the 56-level against the dollar after June 29.
The dollar strengthened against other currencies as well in the overseas market.
The rupee on Tuesday rose by 11 paise to 56.90 against the US dollar in early trade at the Interbank Foreign Exchange market as the American currency weakened against euro and other currencies overseas.
Rupee recovered sharply by 65 paise against the dollar in early trade on Monday on selling of American currency by banks amid expectations that Reserve Bank may announce steps to boost the local unit.
According to BofA-ML, the rupee volatility raises near term risk to inflation and to a rate cut this month.
Sentiments were weighed down as the US dollar turned higher against its major counterparts.
At the Interbank Foreign Exchange (Forex) market, the domestic unit opened lower at 56.02 as against its previous close of 55.64 on dollar buying by importers, mainly oil refiners, to meet their month-end requirements.
Forex trade can be a very profitable venture. But while the money market movements are small, they can hurt big.
This marks a turnaround after rupee's 158-paise plunge in the last three sessions.
The Indian rupee recovered by four paise to 54.99 after touching all-time low of 55.07 against the American currency in the late morning trade due to mild selling of dollars by banks following following measures taken by RBI to curb the local currency's fall.
JP Morgan has downgraded the Indian information technology sector to 'underweight' as it believes the heydays of the sector are over. Rising margin headwinds in the near-term and the revenue headwinds in the medium-term from a potential macro slowdown, Ankur Rudra and Bhavik Mehta of JP Morgan said in the report, will mean that the sector's earnings upgrade cycle is behind. "We see peak revenue growth behind us and earnings before interest and taxes (EBIT) margins trending down from inflation, mean revision.
PowerGrid was the top gainer in the Sensex pack, surging over 4 per cent, followed by Bharti Airtel, Tata Steel, NTPC, HDFC Bank, UltraTech Cement and Kotak Bank. On the other hand, TCS, Nestle India, Reliance Industries and HCL Tech were among the laggards.
The ECB on Thursday cut its main refinancing rate to zero from 0.05 per cent.
The Nifty-Sensex have recorded successive 52-week lows through the last week.
Investors and companies should brace for higher commodity prices over the next few weeks in the backdrop of Russian troops attacking Ukraine on Thursday. Meanwhile, US President Joe Biden threatened new sanctions against Russia for an act of aggression against Ukraine. All this, analysts believe, can push prices of key commodities such as crude oil, ammonia, urea, potash, and phosphates higher.
Barring bullion, all other commodity markets, stock markets, forex and money markets to remain closed on Tuesday on account of Ram Navmi.
Gold today zoomed by Rs 1,025, its second biggest rise this year, to Rs 28,990 per 10 grams, on brisk buying by stockists and investors amid a firming global trend and shifting of funds to the precious metal from volatile equity and forex markets.
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In global markets, the dollar declined against key rivals in early trade as investors weighed the prospects for a continuation of monetary stimulus from the US Federal Reserve.
Dollar gains against other currencies overseas also put pressure on the Indian rupee.
The Indian rupee on Wednesday ended unchanged against the US dollar at 61.41 ahead of the outcome of US Federal Reserve's policy meeting.
The rupee on Tuesday tumbled by 32 paise to close at 64.17 on fresh dollar demand from importers.
Maruti Suzuki India on Wednesday reported a 42 per cent rise in consolidated net profit to Rs 2,671 crore for the fourth quarter ended March 2023, driven by higher sales, improved realisation and favourable forex movement. The country's largest carmaker logged a net profit of Rs 1,876 crore in the January-March of 2021-22. Net sales during the fourth quarter rose to Rs 32,060 crore compared to Rs 26,749 crore in the year-ago period, Maruti Suzuki India (MSI) said in a regulatory filing.
Economists and experts have suggested that the central bank should intervene in the Indian forex market to halt the sharp depreciation in rupee value.
Overseas, the US dollar took a breather against basket currencies
Persistent dollar demand from banks and importers on the back of a higher dollar in the New York market mainly affected the rupee.
Risk management is too technical and dynamic a field to lend itself to decision-making by a committee. It needs to be run by professionals with a clear mandate and accountability, says Jamal Mecklai.
All Sensex components ended in green, with Bajaj Finserv, HCL Tech, Bharti Airtel, IndusInd Bank, L&T, TCS, ONGC and ICICI Bank, Bajaj Finance and SBI gaining up to 6.64 per cent.
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