Demand for dollars from oil importers knocked off most of the rupee's sharp opening gains on Tuesday, but expectations for capital flows into stocks underpinned the market.
At 10:44 a.m., the rupee was at 49.17/18 to the dollar, marginally stronger than Monday's close of 49.2150/2250, and off 49.08 touched in early trade.
Traders said volume was slightly lower as millions of workers, including from state-run banks, across India began an on-day strike to express their anger at soaring prices and to back demands for improved rights for employees.
"There seems to be panic dollar buying from oil companies as oil prices have surged beyond expectations," said Uday Bhatt, senior manager of dealing at UCO Bank.
India imports about 80% of its oil requirements and oil companies are the biggest buyers of dollars in the local currency market.
"A good amount of (capital) inflows are there, so any fall in rupee should be restricted to 49.30-49.40," Bhatt said.
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Foreign funds have poured more than $11 billion into local equities and debt so far in 2012, an indication of their bullish view on India.
The BSE Sensex was up more than 1%, taking gains since the end of December to over 14%.
The rupee, which touched a record low of 54.30 last December 15, has gained around 8% so far this year.
One-month offshore non-deliverable forward contracts were at 49.60.
In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange were all around 49.55, on a total volume of $536 million.