The rupee on Wednesday bounced back by 41 paise to close at 47.29/30 against the US currency, ending the five-session losing string.
Dealers said smart recovery in stock markets helped rupee notch gains against the dollar despite heavy capital outflows.
Some dollar selling by exporters too supported the rupee rise, they added.
In the last five trading sessions, the rupee had tumbled by 2.11 paise, or 4.63 per cent.
Recovery in sync with the local equities, the domestic unit opened higher at 47.48/49 a dollar from its last close of 47.70/71 at the Interbank Foreign Exchange (Forex) market. It gyrated in a range of 47.59 to 47.25 during the day.
The Indian benchmark Sensex on Wednesday rebounded by over 365 points or 2.28 per cent due to strong global advices. According to analysts, the rise in the rupee might cap sustained capital outflows amid firm dollar overseas.
Foreign Institutional Investors (FIIs) pulled out nearly $1.8 billion from equities in the current month so far. The dollar was up against its major rivals.
Meanwhile, global crude oil was trading just above $70 a barrel in London on Wednesday.
The benchmark six-month forward dollar premium payable in October fell back to 48-1/2-50-1/2 paise from 53-55 paise on Tuesday and far-forward maturing in April also declined to 88-1/2-90-1/2 paise from 93-95 paise previously. The Reserve Bank fixed the dollar reference rate at Rs 47.57 and for the euro at Rs 58.43.
The rupee recovered against the pound and the yen while softened against the euro. The rupee rose against the pound to close at Rs 68.08/10 per pound from Tuesday's close of Rs 68.29/30 and also rebounded against the yen to Rs 52.38/40 per 100 yen from Rs 53.33/35 previously.
It, however, eased against the euro to Rs 58.26/28 per euro from its last close of Rs 58.18/20.