The rupee gained on Friday, rebounding from a one-month low hit earlier in the session, after the Reserve Bank was suspected of having intervened to prevent a bout of risk aversion hitting Asian currencies from also enveloping India.
The partially convertible rupee closed at 62.16 per dollar compared with 62.26 on Thursday.
The RBI was seen selling dollars in the forex market from 62.50 rupee levels to support the rupee, after the currency had earlier fallen to as much as 62.56, its lowest since November 29.
Caution is likely to prevail ahead of key economic indicators later this month. India is set to post November factory data on January 10, followed by consumer and wholesale inflation for December later in the month.
The data will be key in determining whether the central bank raises interest rates at its policy review on January 28.
"The US yields have been rising which has caused a risk aversion scenario amongst markets on fears of further tapering.
The stock markets also fell but recovered towards the closing and nationalised banks sold dollars to check the depreciation of the rupee," said Anil Kumar Bhansali, vice president at Meclai Financial.
For the week, the rupee dropped 0.5%, its second weekly fall in four.
Indian shares fell on Friday to mark their biggest weekly decline in eight as profit-taking hit blue chips such as Reliance Industries for a third consecutive day, extending the weak start to 2014.
The rupee has already shed 0.6% in the new year, tracking weaker emerging Asian currencies such as the Indonesian rupiah as hopes of a recovery in the United States have strengthened the dollar.
In the offshore non-deliverable forwards, the one-month contract was at 62.66, while the three-month was at 63.53.