Snapping its 4-day losing streak, the rupee rose by 25 paise at 63.91 against the US dollar on fresh selling of the American currency by banks and exporters amidst renewed foreign capital outflows.
The rupee opened higher at 64.14 against Monday's closing of 64.16 at the Interbank Foreign Exchange (Forex) market and hovered in a range of 64.12 and 63.89 before finishing at 63.91, showing a gain of 25 paise or 0.39%.
It had dropped by 61 paise, or 0.96%, in previous four trading days.
Foreign portfolio investors sold shares worth a net Rs 859.94 crore on Monday, as per provisional data released by the stock exchanges.
In the overseas market, the dollar advanced against the yen on Tuesday as worries about China's stock sell-off abated somewhat, but the buck fell against the pound after the latest reading on UK economic growth matched expectations.
Some stabilisation in Asian stocks prompted nervous investors to loosen their grip on the perceived safety of the Japanese currency.
The benchmark BSE Sensex dropped further by 102.15 points, or 0.37%, to settle at 27,459.23.
Meanwhile, a two-day policy meeting of the Federal Reserve Open Market Committee (FOMC) begins on Tuesday.
The US central bank is widely expected to keep interest rates at a record low at the meeting, but expectations are rising that a rate hike could come later this year.