The US currency gained traction after the release of closely-watched China economic data.
Snapping its three-day losing streak against the American currency, the rupee recovered by three paise to close at 67.65 on fresh selling of dollars by banks and exporters amidst a recovery in equities.
The domestic unit resumed slightly higher at 67.67 per dollar as against Monday's closing level of 67.68 at the interbank Foreign Exchange (Forex) market.
Later, it gained further to 67.52 on sustained bouts of dollar selling from banks before ending at 67.65, showing a gain of three paise or 0.04 per cent.
It had dropped 83 paise or 1.24 per cent in previous three trading days.
It hovered in a range of 67.52 and 67.74 per dollar during the day.
The domestic unit hovered in a range of 67.74-67.60 during morning deals.
The dollar index was higher by 0.11 per cent against a basket of six currencies in early trade.
Overseas, the dollar rose against the yen in Asian trade today in the late afternoon trade, keeping pace with a gain for Tokyo stocks, and as investors weighed up China economic data.
The US currency gained traction after the release of closely-watched China economic data.
China's gross domestic product expanded 6.8 per cent from a year earlier in the October-December quarter, compared with a market consensus for 6.9 per cent growth.
Last year, China recorded a pronounced deceleration in growth with a 6.9 per cent pace, the weakest in a quarter century.
Meanwhile, the benchmark Sensex rose by 291.47 points or 1.21 per cent today.
Pramit Brahmbhatt, Veracity Group CEO, said, "The rupee continued to take cues from domestic equity market as Nifty closed with a remarkable gain of 84 points in today's trading session while the rupee closed with a marginal gain of 3 paisa at 67.65 levels, thus by weakening USD.
Trading range for spot USD/INR pair is expected to be within range of 67.5 to 68.
The rupee continues to take cue from equity market and expect it to trade with positive bias.
In forward market, premium for dollar moved down further persistent receivings by exporters.
The benchmark six-month premium payable in June edged- down further to 189-191 paise from 191-193 paise yesterday and forward December 2016 contract also declined to 399-401 from 401.50-403.50 paise yesterday.
The RBI fixed the reference rate for the dollar at 67.5630 and for the euro at 73.5018.
In cross-currency trades, the rupee declined against the pound sterling to finish at 96.81 from 96.79, but recouped against the euro to 73.52 from 73.72.
The domestic currency also recovered against the Japanese yen to settle at 57.30 from 57.65 per 100 yen yesterday.