Shrugging off initial weakness, the rupee on Tuesday appreciated by 10 paise to close at 55.34 on the back of robust capital inflows and a weak dollar overseas.
The sentiment also favoured rupee as euro traded just below a three-and-a-half month high against dollar on optimism ahead of a German court ruling on a new EU bailout fund.
At the Interbank Foreign Exchange (Forex) market, the rupee resumed slightly weak at 55.46 a dollar against compared to the previous close of 55.44.
It touched a low of 55.54 on sustained dollar demand from importers at initial stages.
However, rupee scripted a bounce back on the back of dollar selling by exporters and capital inflows worth Rs 400 crore in Indian shares.
Thereafter, rupee touched a day's high of 55.32 before concluding at 55.34, clocking a gain of 10
The dollar index, consisting of six global currencies, was down by 0.22 per cent in late European market on Tuesday.
Pramit Brahmbhatt, CEO, Alpari Financial Service (India) said," Rupee regained lost ground in second half of session ahead of the German court ruling and rising expectations of the US Fed implementing easing in its forthcoming meeting.
The rebound in dollar index and oil importers demand had exerted pressure on the rupee."
Tomorrow will be very important for the market players with local IIP data and meeting in Euro and US, said Abhishek Goenka, Founder & CEO, India Forex Advisors.
Meanwhile, the Indian stock market benchmark Sensex on Tuesday ended up by over 86 points or 0.49 per cent.
