Rupee rose more than 0.2 per cent on Wednesday as the stock market snapped a three-day slide, renewing hopes foreigners would resume their share purchases and boosting sentiment for the local currency.
The partially convertible rupee ended at 42.86/87 per dollar, 0.23 per cent stronger than Tuesday's close of 42.96/97.
It had hit a 13-month low of 43.21 on May 22. "The rupee gained mainly tracking the stock market today, and foreign banks were seen liquidating their dollars holdings in market," a dealer with a state-run bank said.
The BSE rose 2 per cent on Wednesday, as investors scooped up bargains after the market had hit a 2008 low in the previous session, while drug maker Ranbaxy was driven by a takeover bid from Japan's Daiichi Sankyo.
The share index is down more than 22 per cent in 2008, with foreigners being net sellers of $5.3 billion worth of Indian shares, helping push the rupee down more than 8 per cent.
The rupee rose more than 12 per cent in 2007, when foreign funds infused $17.4 billion into Indian stocks. Oil, India's biggest import, was trading above $133 a barrel after hitting a record $139.12 last week, and dealers said further gains in the rupee were limited by some dollar demand from oil refiners facing import payments.
Traders said dollar buying by oil companies in the currency market has eased after the central bank said it would provide foreign exchange to the firms, indicating it may have started doing so.