The rupee rose by 20 paise to 81.50 against the US currency in morning trade on Wednesday following a weak dollar in the global markets.
However, the rupee's advances were constrained by early losses on the domestic stock markets and a rise in oil prices.
The rupee advanced at the interbank foreign exchange, rising from its opening price of 81.62 to a morning session high of 81.49.
At 09:50 hrs, the rupee was trading at 81.50 to the dollar. The local currency had closed lower at 81.70 on Tuesday.
The US dollar index, which gauges the greenback's strength against a basket of six currencies, slipped 0.04 per cent to 101.88.
Brent crude was trading 0.43 percent lower at USD 86.48 per barrel, while Indian basket oil was trading 2.69 percent lower at USD 79.98 per barrel.
The 30-share BSE Sensex fell by 268 points, or 0.44 percent, to 60,709.93 on the domestic equity market front. The larger NSE Nifty fell to 18,028.05 by 90.25 points, or 0.5%.
According to exchange data, Foreign Institutional Investors (FIIs) sold shares worth Rs 760.51 crore on Tuesday, making them net sellers in the capital market.
With inputs from Agencies.