The sentiment was also in favour of rupee with inflows worth Rs 300 crore from FIIs coming into the stock market.
The local currency commenced sharply higher at 55.20 a dollar at the Interbank Foreign Exchange (Forex) market from the previous close of 55.49. It later moved in a range of 55.12 and 55.31 on alternate bouts of demand and supply.
The rupee finally closed at 55.26, a rise of 23 paise or 0.41 per cent. In the last four sessions, the rupee has gained 49 paise or 0.88 per cent against the US dollar.
Continued dollar offloading by exporters and some banks on hopes further fall in dollar value overseas mainly supported the rupee, said forex traders.
"The rupee strengthened to about two-week high tracking weakness in dollar index and rising equity markets. However, towards the fag end, the rupee pared some gains but closed on a firm note," said Pramit Brahmbhatt, CEO, Alpari financial Services (India) said.
The Indian stock market benchmark Sensex today washed out mid-session gains and closed nearly flat, pressurising the rupee to some extent at the fag-end, said traders.
The dollar index was down by 0.13 per cent against a basket of six major currencies a day after minutes from the Federal Reserve latest policy meeting signalled that the US central bank is likely to introduce another round of monetary stimulus.
The New York crude oil was quoting below USD 98 a barrel.
Today's meeting of French and German leaders will be important from the Euro's perspective as they will be discussing about Greece, said Abhishek Goenka, Founder & CEO, India Forex Advisors. (MORE)
