Early on Thursday, the rupee strengthened 21 paise to 82.62 against the US dollar, helped by widespread dollar weakening and a strong trend in domestic markets.
Positive domestic trade deficit data and foreign money inflows, according to forex traders, helped to boost investor optimism.
The native currency at the interbank foreign exchange started out at 82.72 versus the dollar before moving up and reaching 82.62, rising 21 paise from its previous finish.
On Wednesday, the rupee settled at 82.83 against the US dollar.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.25 per cent to 103.66.
Brent crude futures rose 0.50 percent to USD 85.81 per barrel, the global oil benchmark.
The 30-share BSE Sensex was up 391.48 points, or 0.64 percent, at 61,666.57 on the domestic equity market. The NSE Nifty index as a whole increased by 113.90 points or 0.63 percent to 18,129.75.
As imports decreased 3.63 percent year over year to USD 50.66 billion in January, India's trade deficit decreased to a 12-month low of USD 17.75 billion. When compared to January of last year, exports fell 6.58 percent to USD 32.91 billion.
According to exchange data, Foreign Institutional Investors (FIIs) were net purchasers in the capital market on Wednesday, buying shares worth Rs 432.15 crore.
With inputs from Agencies.
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