The rupee appreciated for the second straight session and ended 9 paise higher at 60.84 against the US dollar on Tuesday on the back of rising local stock market and sustained dollar selling by exporters.
A firm dollar overseas ahead of service-sector and factory-order data restricted the rise to some extent, a forex dealer said.
The Reserve Bank of India (RBI) on Tuesday maintained its key rate as it is but slashed statutory liquidity ratio (SLR) by 0.5% to 22% to release about Rs 40,000 crore into the financial system.
It also reduced the ceiling of banks total holdings of SLR securities under the held to maturity to 24% from 24.5% of net demand and time liabilities.
At the Interbank Foreign Exchange (Forex) market, the domestic currency resumed slightly lower at 60.95 a dollar from previous close of 60.93. It moved down further to a low of 61.00 on initial hesitancy in local equities.
Later, it bounced back in line with domestic bourses and touched a high of 60.69 before settling at 60.84, a rise of nine paise or 0.15%. On Monday, it rose by 25 paise.
The benchmark S&P BSE Sensex on Tuesday rallied by 184.85 points, or 0.72%. FIIs had infused Rs 372.56 crore on Monday in equities as per provisional data.
The dollar index, a gauge of six major global rivals, was up by 0.18% ahead of data releases.
Pramit Brahmbhatt, CEO, Veracity Group, said: "Rupee continued to trade range bound to slightly strong and rose by almost 10 paise. As expected, RBI kept the key rates unchanged. The trading range for spot rupee is expected to be within 60.40 to 61.40."
In the forward market, premium recovered on fresh payments from banks and corporates.
The benchmark six-month premium payable in January ended better at 248-250 paise from 246-248 paise previously.
Far-forward contracts maturing in July, 2015 also firmed up to 493-495 paise from 485.5-487.5 paise.
The Reserve Bank of India fixed the reference rate for dollar at 60.8690 and for the euro at 81.6955.
The rupee fell back against the pound to 102.59 from last close of 102.53 while improved further to 59.25 per 100 Japanese yen from 59.39.
It also remained firm against the euro to end at 81.45 from 81.75.