The Indian rupee strengthened further on Wednesday, tracking gains in Asian units and local shares, and supported by dollar inflows from a large telecom company towards tax payment.

"Till the end of the year, rupee looks volatile in a range. But for now, it is holding on to gains in sympathy with Asians," said Ajay Mahajan, managing director and head of financial markets and institutional banking at UBS.

Dealers expect the Indian unit to mostly track local shares and move in 45.60-45.90 band intra-day.

At 11:16 a.m. (0546 GMT), the partially convertible rupee was at 45.70/71 per dollar compared with its 45.88/89 close on Tuesday, when it had dipped to 46.12, its weakest since Sept. 17.

The rupee had regained all its intraday losses on Tuesday following a stronger-than-expected GDP growth number for the September quarter, which improved local equity market sentiment.

"The rupee should be supported today as some banks have got (dollar) inflows from a large telecom company and are selling dollars," said a dealer at a foreign bank.

The telecom firm is expected to bring in $500 million towards tax payment over a period of time.

"I expect euro to remain under pressure. The dollar index upside is expected around 82.50-83.00 by end of the year," UBS's Mahajan said, adding, the rupee/dollar will outperform euro/dollar given India's strong growth fundamentals.

India's economy grew more than expected in the second quarter of 2010/11, boosted by farm output and manufacturing, putting pressure on the Reserve Bank of India to tighten monetary policy although a rate hike next month looks unlikely.

Indian shares remained buoyant and were up 1.1 percent on Wednesday, on hopes of a stronger economic growth.

But, besides the telecom firm-related dollar inflows, dealers do not expect any major inflows this week.

"The IPO-related inflows are over. Shipping Corp (equity) issue size is small, we don't expect any large inflows for that," said another foreign bank dealer.

State-run Shipping Corporation of India is likely to raise up to $259 million through a share sale. The issue opened on Tuesday and will close on Friday.

The euro continued to struggle across the board on Wednesday, stuck near 11-week lows against the dollar as the market waited to see what European policymakers would do next to try to contain worries about euro zone debt.

The dollar index, which tracks the greenback's performance against a basket of other major currencies, was down 0.10 percent at 81.111 points. It had risen to 81.444 points, its highest since Sept. 20 on Tuesday.

Foreign funds bought $59.4 million worth of shares on Monday, latest data shows, taking net investments in shares to a record $28.7 billion so far in 2010, on top of the $17.5 billion purchased last year.

The one-year onshore dollar premium was a tad up at 206.25 points from Tuesday's close of 204 points.

One-month offshore non-deliverable forward contracts were at 45.94, weaker than the onshore spot rate, suggesting a bearish near-term outlook.

In the currency futures market, the most traded near-month dollar-rupee contract on the National Stock Exchange, MCX-SX and United Stock Exchange were at 45.9300, 45.9325 and 45.9350 respectively, with the total traded volume on the three exchanges at a moderate $1.9 billion.