The Indian rupee clawed back some lost ground on Wednesday, gaining 27 paise to settle at 72.12 against the US dollar in line with a recovery in domestic equities.
At the interbank foreign exchange market, the rupee opened at 72.20 a dollar and advanced to a high of 71.96 during the day. It finally settled at 72.12, up 27 paise over its previous close of 72.39.
Forex traders said the Indian currency gained following weakness in the US dollar.
The dollar index, which gauges the greenback's strength against a basket of six currencies, slipped 0.35 per cent to 98.65 weighed down by weak factory activity in the US, which shrank in August for the first time since August 2016.
Gains in domestic equity market also supported the local unit and helped it recoup some of its losses of the previous session.
The rupee on Tuesday dropped by 97 paise to more than nine-month low of 72.39 a dollar.
Meanwhile, the BSE benchmark Sensex on Wednesday recovered by nearly 162 points, while the NSE gauge Nifty rose 47 points to settle above the key 10,800-mark.
The 30-share index ended 161.83 points, or 0.44 per cent, higher at 36,724.74. The broader Nifty after opening on a flat note in the morning traded in the range of 10,858.75 and 10,746.35 during the session. It finally ended the day with 46.75 points, or 0.43 per cent, gains at 10,844.65.
Meanwhile, the 10-year government bond yield was at 6.55 per cent on Wednesday.
Brent crude futures, the global oil benchmark, rose 1.17 per cent to USD 58.94 per barrel.
Foreign institutional investors (FIIs) remained net sellers in the capital markets, pulling out Rs 2,016.20 crore on Tuesday, provisional exchange data showed.
The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 72.1899 and for rupee/euro at 78.9998. The reference rate for rupee/British pound was fixed at 86.7193 and for rupee/100 Japanese yen at 67.92.
The Indian currency has witnessed a significant decline since the start of this year amid sustained foreign fund outflows and weak macro economic environment.
India's GDP growth fell to an over six-year low of 5 per cent in the June quarter. Besides, the growth of eight core industries dropped to 2.1 per cent in July, mainly due to contraction in coal, crude oil and natural gas production.
Moreover, the lingering US-China trade war and Brexit fears dragged the domestic currency, traders said.
President Donald Trump on Tuesday warned China over delaying trade talks.
"We are doing very well in our negotiations with China. While I am sure they would love to be dealing with a new administration so they could continue their practice of 'ripoff USA' (USD 600 B/year), 16 months plus is a long time to be hemorrhaging jobs and companies on a long-shot...., Trump said in a tweet Tuesday.
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