Mumbai: Snapping its two-day falling streak, the rupee rebounded 54 paise to finish at 71.24 against the US dollar on Wednesday as sliding crude oil prices eased pressure off emerging market currencies.
However, unabated foreign fund outflows capped the gains, forex traders said.
Global equities and oil markets stabilised after Saudi Arabia's energy minister said production capacity at its plant targeted by drone attacks over the weekend would be fully restored by the end of the month.
At the Interbank Foreign Exchange, the rupee opened at 71.47 and surged to an intra-day high of 71.17 against the US dollar. The local unit finally settled at 71.24, higher by 54 paise over its previous close of 71.78.
"Indian rupee led gains in emerging market Asian currencies as crude prices eased after Saudi Arabia partially restored production at its damaged oil plant," HDFC Securities Head PCG and Capital Markets Strategy V K Sharma said.
Sharma further said lower crude oil prices calmed concerns about inflation and the fiscal side which will provide room for the RBI to lower interest rate in the coming October meet.
The Reserve Bank of India, which has already reduced the key policy rate four times in the current calendar year, is scheduled to announce its next bi-monthly monetary policy on October 4.
Market participants were also awaiting cues from the much-anticipated policy meeting of the US Federal Reserve, traders said.
Meanwhile, crude oil benchmark, Brent Futures on Wednesday witnessed some moderation and was trading at USD 64.32 per barrel, down 0.36 per cent.
Foreign institutional investors (FIIs) offloaded equities worth a net Rs 959.09 crore on Wednesday, provisional exchange data showed.
On the domestic markets front, the 30-share BSE Sensex ended 82.79 points, or 0.23 per cent, higher at 36,563.88. Similarly, the broader NSE Nifty gained 23.05 points, or 0.21 per cent, to finish at 10,840.65.
The 10-year government bond yield was at 6.62 per cent.
The dollar index, which gauges the greenback's strength against a basket of six currencies, rose by 0.20 per cent to 98.46.
The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 71.8196 and for rupee/euro at 78.9613. The reference rate for rupee/British pound was fixed at 89.1219 and for rupee/100 Japanese yen at 66.36.