Strength in euro in the overseas market where it was up 0.3 per cent against the dollar at USD 1.2495 also boosted the sentiment in favour of the rupee, forex dealers said.
Globally, investors returned to assets like stocks as they anticipated a monetary stimulus signal from the European Central Bank's meeting today in a bid to restore confidence in the troubled Eurozone.
The rupee today opened strong at 55.45 from the overnight close of 55.64 at the Interbank Foreign Exchange market.
It touched a low of 55.61 in late morning deals but a sudden rise in Indian shares and dollar selling by exporters and banks helped the rupee to rebound. The rupee touched a high of 55.32 and finally closed at 55.36, showing a rise of 28 paise or 0.50 per cent. Yesterday, the rupee gained a mere 1 paisa.
According to NSE, Foreign Institutional Investors (FIIs) today bought stocks worth Rs 269 crore in capital market segment, marking a turnaround as they had sold stocks worth Rs 1,318 crore in the last two sessions.
"We saw some selling of dollars by the FIIs in the early trade, which could be due to stock market demand. The rupee also got support from the equity market," said T S Srinivasan, General Manager (Treasury), Indian Overseas Bank.
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Hemal Doshi, Chief Currency Strategist of Geojit Comtrade said the rupee is showing bias towards appreciation and may touch Rs 54.50-54.80 level per dollar in the near-term.
Meanwhile, the Indian benchmark BSE Sensex registered its biggest single-day gain of nearly 434 points in 2012 today, extending gains for the third straight session. (MORE)