Forex dealers said, however, a firm dollar capped rupee's rise to some extent.
The local currency started the day on a firm note at 54.84 at the Interbank Foreign Exchange (Forex) market, from its previous close of 54.94.
Later, it moved in a narrow range of 54.75-54.98 before settling at 54.77, a rise of 17 paise, or 0.31 per cent.
"The rupee regained all of its lost ground of previous session on strong equity markets which advanced higher tracking gains in Japan's Nikkei," Alpari Financial Services (India) CEO Pramit Brahmbhatt said.
Meanwhile, the BSE benchmark Sensex bounced back by 121.04 points to 19,444.84.
Foreign institutional investors (FIIs) pumped in over USD 152 million (Rs 833.40 crore) in the local stock market, as per provisional data on the BSE.
Abhishek Goenka, founder and CEO, India Forex Advisors, said: "On the global front, the US dollar index was seen trading above its two week high as US lawmakers resume the fiscal cliff talks".
The dollar index, a barometer of six major currencies, was up by 0.27 per cent, after reports said US President Barack Obama called an 11th-hour meeting with top Congressional leaders to negotiate a deal to avoid the "fiscal cliff". (MORE)
