The Indian rupee recovered from initial losses and ended 6 paise higher at 63.29 against the greenback on Friday on selling of the US dollar by banks and exporters, amid hopes of more foreign capital inflows into the equity market.
On Thursday, the rupee suffered its worst single-day drop in over two weeks by falling 32 paise to 63.35 against the dollar.
The rupee on Friday resumed lower at 63.43 per dollar as against Thursday's close of 63.35 at the Interbank Foreign Exchange (Forex) market. It then fell to a session low of 63.48 on dollar demand from importers.
However, the rupee recovered to 63.24 before ending at 63.29 per dollar, showing a gain of 6 paise or 0.09%.
"Bullish domestic equities largely lifted the rupee sentiment," a forex dealer said.
The benchmark Sensex on Friday soared by 380 points, logging its sixth successive session of gains, to a nearly four-week high boosted by gains in banking stocks on hopes of much-awaited sectoral reforms and encouraging manufacturing output data for December.
In the global currency market, the US dollar strengthened on speculation that the Federal Reserve is on course to raise interest rates this year. There is also buzz that the European Central Bank is preparing to extend its stimulus measures.
In New York, the US dollar hit its highest level in nearly nine years on Thursday against the basket of currencies.
Veracity Group CEO Pramit Brahmbhatt said: "This week the rupee posted its first weekly gain in four weeks. The trading range for the spot rupee is expected to be within 63.00 to 63.60."
Meanwhile, in the forwards market, premia recovered on fresh paying pressure from corporates.
The benchmark six-month premium payable in June moved up to 226-228 paise from 224-226 paise previously.
The forward contracts maturing in December also closed higher at 433-435 pasie from 425-427 paise.
The Reserve Bank of India fixed the reference rate for the dollar at 63.2878 and for the euro at 76.3061.
The rupee bounced back sharply to 97.65 against the pound from 98.47 on Thursday and also firmed up to 76.25 per euro from 76.63.
It moved up to 52.52 per 100 Japanese yen from 52.94 previously.