The rupee on Tuesday ended stronger at 40.60/61 against the US currency after sniffing 40.50 level, buoyed by fresh dollar selling amid increased FII inflows.
The Reserve Bank of India (RBI) again is believed to have intervened to check the rupee's surge when it touched the day's high of 40.53 during the trading session.
In volatile trade at the interbank foreign exchange (forex) market, local currency rallied sharply to touch the intra-day high following sustained dollar selling by traders after China revised the trading band for yuan on Monday.
Hectic dollar short covering by banks, however, trimmed the rupee's gains at the fag end of the day.
Traders suspected dollar buying at the behest of the central bank but a forex dealer with foreign bank ruled out the RBI intervention, attributing the turnaround to short covering of dollar positions.
Oil importers were sidelined despite approaching end of the month and fairly high global oil prices.
The RBI normally intervenes in the foreign exchange market to check the rupee's surge in a bid to maintain the exporters' competitiveness.
Meanwhile, equity markets showed scrip-specific activity and closed with moderate gains.