The rupee today rose to over five- month high of 52.49 against the dollar on strong capital inflows, advances in stock markets and hopes of more policy reforms.
The local currency, however, ended the day at 52.85 after poor core sector numbers dampened the sentiment.
Forex dealers said heavy dollar selling by exporters and banks amid weak dollar overseas helped the rupee to rally for the second day in a row.
At the Interbank Foreign Exchange (Forex) market, the domestic unit resumed remarkably higher at 52.73 a dollar from previous close of 53.02.
Tracking stock market movements, the rupee touched a high of 52.49 in late morning deals, a gain of 53 paise from its last close.
However, sudden emergence of dollar demand from importers, mainly oil refiners, pulled down the rupee to 52.85, still showing a rise of 17
"Rupee appreciated in the morning session on the back of FII inflows and dollar selling by foreign banks. However, as the domestic currency strengthened, it gave a good opportunity for oil marketing companies to buy dollar due to attractive rates, which pulled rupee to the closing level," IDBI Bank Treasury Head N S Venkatesh said.
The last time rupee settled below this level was on April 30 this year, when it closed at 52.73.
Meanwhile, the BSE benchmark Sensex today shot up by 183.24 points, or 0.99 per cent, to a 14-month high of 18,762.74, partly supported by the rise in rupee.
On fund-flows front, foreign institutional investors (FIIs) injected USD 118.46 million yesterday, taking the total to USD 3.56 billion in the current month till September 27, as per Sebi data.
Falling steadily for a period of time, the rupee in June had hit all-time low of 57.37 against the dollar.
Recent policy measures like allowing 51 per cent FDI in multi-brand retail, 49 per cent investment by foreign airlines in aviation sector, easing ECB norms have helped the rupee appreciate against the dollar.
The rupee sentiment also got buoyed by government's remark yesterday that it will raise Rs 2 lakh crore in the second half of the fiscal and try to keep the fiscal deficit target.
Hemal Doshi, currency Strategist at Geojit Comtrade, said the "rupee is showing an appreciating bias".
"The rupee extended its gain on month-end dollar demand and slight rebound in dollar index. The government's policy reforms process continues, which was welcomed by the markets," Alpari Financial Services (India) CEO Pramit Brahmbhatt said.
The dollar index was quoting lower by 0.005 per cent against a basket of six major currencies, after Spain outlined its budget plans to contain deficit.
The benchmark six-month forward dollar premium payable in March ended a tad lower at 165-167 paise from Thursday's close of 166-168
However, the premium for far-forward contracts maturing in September closed at its overnight level of 311-313
The RBI has fixed the reference rate for the US dollar at 52.6970 and for euro at 68.1485.
The rupee continued to rule firm against the pound sterling to 85.59 from yesterday's close of 85.91 and also improved further against the Japanese yen to 68.10 per 100 yen from 68.25.
However, it fell back against the euro to 68.32 from last close of 68.20.