The rupee climbed against the dollar on Thursday, with sentiment helped by gains in Asian shares, which could draw overseas investors to emerging markets, dealers said.
At 9:45 am, the partially convertible rupee was at 39.68/69 per dollar, gaining from the previous finish of 39.76/77.
"If the global cues remain positive for a couple of days more, we should see the local dollar shortage end," said a senior dealer with a private bank.
Asian stocks powered higher on Thursday after a surprise increase in US retail sales and unexpectedly strong growth in Japan's economy eased some of the pessimism that has gripped the region.
India's benchmark share index is expected to trade higher on Thursday, extending the previous day's 2 per cent gains, and revive overseas investment flows, dealers said.
Foreign funds have sold about $3.5 billion of stocks so far in 2008, which has led to a shortage of dollars in the banking system. Overseas investors bought a record $17.4 billion of Indian equities in 2007.
Some traders said that dollar purchases by some importers would keep a lid on the rupee, as would the prospect of central bank intervention.
The Reserve Bank of India is widely seen playing an active role in stemming rapid appreciation of the rupee.