The rupee recovered from its record low to close 21 paise higher at 77.50 against the American currency on Wednesday as dollar sales by some banks offset the impact of elevated crude oil prices and persistent foreign fund outflows.
At the interbank forex market, the rupee opened at 77.58 against the greenback and moved in a range of 77.51 to 77.62 in the day's trade.
The rupee finally ended at 77.50, higher by 21 paise over its previous close.
On Tuesday, the rupee had declined by 17 paise to close at its all-time low of 77.71 as surging US bond yields dampened the appeal of riskier assets.
The dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.15 per cent to 101.90.
Brent crude futures, the global oil benchmark, surged 1.84 per cent to USD 117.73 per barrel.
''Rupee continued to trade in a narrow range and volatility remained low despite marginal weakness in domestic and global equities,'' said Gaurang Somaiya, Forex & Bullion Analyst, Motilal Oswal Financial Services.
On the domestic front, GDP and fiscal numbers came in mixed and had limited impact on the currency, Somaiya added.
Dollar rose on Tuesday after a meeting between the US President and Fed Chairman suggested that policy focus will be on inflation.
The BSE Sensex ended 185.24 points or 0.33 per cent lower at 55,381.17, while the broader NSE Nifty slipped 61.80 points or 0.37 per cent to 16,522.75.
Foreign institutional investors were net sellers in the capital market on Tuesday as they offloaded shares worth Rs 1,003.56 crore, as per stock exchange data.
Meanwhile, India's manufacturing sector growth steadied in May as demand showed signs of resilience and improved further in spite of another uptick in selling prices, a monthly survey said on Wednesday.
The seasonally adjusted S&P Global India Manufacturing Purchasing Managers' Index (PMI) stood at 54.6 in May, little changed from 54.7 in April, pointing to a sustained recovery across the sector.
''The Indian Rupee appreciated against the dollar on Wednesday even as slightly weak domestic GDP data may not pause RBI's tightening which in turn may not plug activities,'' said Sriram Iyer, Senior Research Analyst at Reliance Securities.
Dollar sales by some banks also boosted the local currency, he added.
The US Dollar Index traded flat to marginally higher in Asian trade lifted by higher Treasury yields as global inflation worries flared again.
According to Jateen Trivedi, VP Research Analyst at LKP Securities, ''Rupee can gain positive cues towards 77.25 which is the 20 DMA in daily charts.''
(With PTI inputs)