The rupee appreciated 10 paise to 82.66 against the US dollar in early trade on Tuesday on the back of a positive trend in domestic equities and relatively weaker greenback.
Forex traders claimed that foreign capital outflows, however, limited the increase in the native currency.
The local unit at the interbank foreign exchange started out well against the dollar at 82.68 before gaining more ground to 82.66, up 10 paise from its previous closing.
Early deals showed it to be fluctuating within a narrow band of 82.69-82.65. The rupee dropped 68 paise on Monday, reaching an all-time low of 82.76 against the dollar.
The dollar index, which measures the value of the dollar against a basket of six different currencies, fell 0.15 percent to 103.46.
Brent crude futures, the global oil benchmark, advanced 0.98 per cent to USD 81.78 per barrel.
This week, the key trigger for the markets is likely to be the decision of the RBI's Monetary Policy Committee on interest rate that will be announced on Wednesday.
At its impending monetary policy review this week, the Reserve Bank of India (RBI) is expected to put a hold on raising interest rates, according to economists at SBI on Monday.
However, other experts believe that the RBI would choose for a 25 basis point repo rate increase because retail inflation is beginning to moderate and the US Fed is slowing the rate of growth of its benchmark interest rate.
The 30-share BSE Sensex was up 89.98 points, or 0.15 percent, on Tuesday, trading at 60,596.88 points. The NSE Nifty index as a whole increased by 23.95 points, or 0.13 percent, to 17,788.55.
According to exchange data, Foreign Institutional Investors (FIIs) sold shares worth Rs 1,218.14 crore on Monday, making them net sellers in the capital market.
With inputs from Agencies.
