The rupee strengthened to its highest level in nearly a week on Tuesday boosted by gains in other Asian currencies, but choppy domestic shares limited any sharp gains.
At 10:55 am, the partially convertible rupee was at 45.01/02 per dollar, off the day's high of 44.94, its strongest since December 8 and above 45.125/135 at close on Monday.
"Rupee is likely to be in a tight range today. Stocks turning negative pulled it off highs, but expect shares to edge back up to hold the rupee in a 44.90-45.20 range today," the chief foreign exchange dealer with a state-run bank said.
"Euro and pound too are strong, so the rupee should gain. There is a slight chance of rates being lifted if inflation is much above expectations, so rupee would rise in the medium term."
Most Asian currencies were trading stronger.
The index of the dollar against six major currencies, however, was up 0.05 per cent at 79.327 points.
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The euro hovered near its high for December against a broadly weaker dollar on Tuesday with traders citing solid buying from accounts including Asian central banks that overwhelmed hedge fund selling.
Indian shares flip flopped on Tuesday, as the ongoing telecom sector probe shadowed firm Asian equities, and investors awaited November inflation data for more cues.
The wholesale price index in November probably rose 7.48 per cent from a year earlier, a Reuters poll showed, slower than an 8.58-per cent increase in October -- which was its lowest reading in 10 months.
The benchmark share index is up 12.8 per cent so far in 2010, helped by net foreign fund investment of $28.7 billion in Indian equities. The rupee is up 3.4 per cent on year.
Traders would watch inflows towards an initial public offering by Punjab and Sind Bank that opened on Monday. The bank aims to raise upto 4.8 billion rupees ($106 million).
One-month offshore non-deliverable forward contracts were quoted at 45.25, weaker than the onshore spot rate.
In the currency futures market, the most traded near-month dollar-rupee contracts on the National Stock Exchange, MCX-SX and United Stock Exchange were all at 45.1575, with the total traded volume on the three exchanges at about $1 billion.