Mumbai: The rupee on Monday rose by 16 paise to close at one-week high of 54.17, following fresh selling of the US dollar by exporters amid strengthening of the euro overseas after Cyprus reached a bailout agreement with international lenders.
Forex dealers said continued capital inflows also helped the local currency.
The rupee commenced strong at 54.11 a dollar from last Friday's close of 54.33 at the Interbank Foreign Exchange (Forex) market.
Later, it fell back in line with fall in equities at the fag end to a low of 54.24, before concluding at 54.17, a rise of 16 paise, or 0.29 percent, from its previous close.
Foreign institutional investors lapped up local shares worth USD 132.5 million (Rs 717.89 crore), according to provisional BSE data.
Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said: "Rupee closed strong today, taking cues from recovery in euro overseas against the dollar after news of Cyprus' reaching a bailout agreement with its international lenders eased worries of its exit from the common currency bloc."
The dollar index was down by 0.03 percent against a basket of six major rivals as Euro rose against the dollar after the Cyprus reached bailout agreement.
During Indian Forex trade hours, euro touched one-week high of 1.3048 against the dollar.
Cyprus and its euro zone partners early today reached a deal on a 10-billion euro (USD 13 billion) bailout package for the island nation to avoid bankruptcy and to keep it within the single currency group.
The finance ministers of the euro zone nations agreed at an emergency meeting in Brussels to down size the banking sector to achieve the EU average by 2018 and to gradually dissolve the Laiki Bank, the country's second largest bank.
Meanwhile, the BSE benchmark Sensex closed down by 54.18 points to 18,681.42 on worries over domestic political developments.
"The rupee moved in a range-bound manner today amid absence of major economic data...The euro was seen trading USD 1.30 levels, taking cues from the deal made by Cyprus, through which the country will be averting the default temporarily," said Abhishek Goenka, Founder and CEO, India Forex Advisors.
"Negative closing of the stock markets also put some pressure on the rupee in late trade. The trading volumes will be thin as there are only two working days remaining in this week now," he added.
The premium for the forward dollar closed mixed.
The benchmark six-month forward dollar premium payable in August ended a tad lower at 172-1/2-174 paise from 173-175 paise previously while far-forward contracts maturing in February edged up to 339-1/2-341 paise from 338-1/2-340-/12 paise last weekend.
The RBI fixed the reference rate for the US dollar at 54.0990 and for euro at 70.4938.
The rupee recovered against the pound sterling to 82.43 from last Friday's close of 82.58 and also inched up to 70.38 per euro from 70.41.
It rebounded against the Japanese yen to 57.17 per 100 yen from previous close of 57.36.