A weak performance by the American currency in overseas markets also helped the rupee rise for the third straight day, said forex dealers.
At the Interbank Foreign Exchange (Forex) market, the local unit resumed lower at 53.00 a dollar compared to last Friday's close of 52.85.
The sentiment reversed on dollar selling by exporters and some banks along with foreign funds inflow worth over Rs 200 crore in local shares.
The rupee finally settled near the day's high levels of 52.40, a rise of 45 paise or 0.85 per cent. This is the highest since rupee had settled at 52.08 on April 20, 2012.
"The rupee made a five month high against the dollar. The gain in the rupee was on the back of improved current account deficit which was seen a major worry by the investors," said Abhishek Goenka, Founder & CEO, India Forex Advisors.
Alongwith domestic factors, the dollar index -- a gauge of six major global rivals -- was down by 0.11 per cent. The euro advanced from a three-week low against the dollar on reports of favourable stress-test results bolstered confidence in Spain's banking system.
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Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said, "The rupee reversed initial weakness into sharp gains on rising capital inflows."
Meanwhile, the Indian stock market benchmark Sensex today rose by another 61.17 points. Foreign institutional investors bought a net Rs 19,300 crore in Indian stocks in September, their strongest purchases this year since February. (MORE)