In line with rise in stocks, the rupee on Tuesday rose by 10 paise -- its biggest single-day rise in over ten days -- to end at 60.07 against the dollar after the government hiked fuel and LPG prices to ease subsidy burden.
Fresh dollar selling by exporters too aided the rupee rise but gains were capped as the dollar index was marginally up against its global peers, a forex dealer said.
At the Interbank Foreign Exchange (Forex) market, the domestic unit commenced higher at 60.10 a dollar from previous close of 60.17. It was then trapped in a narrow breadth of 60.0550 and 60.20 before settling at 60.07, a net gain of ten paise or 0.17%.
In absolute terms, Tuesday's gain of 10 paise was the best since the 31-paise rise on June 19.
On Monday, it had dropped nine paise or 0.15%.
Price of non-subsidised cooking gas (LPG) was on Tuesday hiked by Rs 16.50 per cylinder after international oil prices surged due to the ongoing Iraq crisis.
The increase in rates of non-subsidised LPG came after the Rs 1.69 a litre hike in petrol and 50 paise a litre in diesel announced on Tuesday.
Moody's Investors Service in a report said its expects the government to increase the retail selling prices of controlled fuel products, kerosene and liquefied petroleum gas (LPG), to help control its subsidy burden.
Pramit Brahmbhatt, Veracity Group CEO said: "Rupee continued to trade range bound to slightly strong. The trading range for the spot rupee is expected to be within 59.50 to 60.50."
Extending the rally for the third straight session, the benchmark S&P BSE Sensex today improved further by 102.57 points or 0.40%. FIIs infused Rs 1,288.16 crore on Monday, as per provisional data with stock exchanges.