Persistent overseas investments in stocks and sustained dollar sales also aided the rupee rise, forex dealers said.
At the Interbank Foreign Exchange (Forex) market, the local currency commenced higher at 54.60 a dollar from last close of 54.68.
FIIs pumped in nearly Rs 880 crore in stocks today as per provisional stock exchange data, helping the rupee rise.
Estimates show the country could receive inflows of around USD 3-5 billion over the next two years if FDI in multi-brand retail is allowed, traders said.
Later, rupee moved sideways in a narrow range between 54.44 and 54.64 before finishing at 54.54 -- a gain of 14 paise or 0.26 per cent. Yesterday, it rose by 9 paise or 0.16 per cent.
The rupee's gains were capped by the dollar index recovering its early losses and trading nearly 0.10 per cent up against a basket of six major currencies.
New York crude oil was quoting below USD 89 a barrel in Europe today.
"Persistent capital inflows by foreign funds into equity market helped boost the Indian currency's value against the dollar. Gains were also supported by the voting to be held at Indian parliament on FDI in the retail sector," said Abhishek Goenka, Founder and CEO, India Forex Advisors.
Rising for the second day, the BSE benchmark Sensex today gained about 44 points to close at a new 19-month high on hopes government would get the Parliament approval to the decision allowing FDI in multi-brand retail. (MORE)
