The rupee ended three days of losses after a volatile session to close at 60.13 against the dollar following firm local equities and fresh currency sales by exporters.
Early gains were erased after the RBI said it didn't have any target level for the rupee. Rise in the dollar overseas also capped the rupee surge, a forex dealer said.
At the Interbank Foreign Exchange (Forex) market, the domestic currency resumed strong at 60.00 to a dollar compared with the previous close of 60.21 and gained to as much as 59.91 as local stocks climbed. However, RBI governor D Subbarao's comment in Chennai that the central bank doesn't have "an exchange rate target" dented sentiments. Continued dollar demand from importers and some banks also saw the rupee dropping to a low of 60.38 in late afternoon deals.
The currency later rebounded on fag-end dollar selling by exporters to settle at 60.13, ekeing out a gain of eight paise, or 0.13 per cent. The rupee had plunged 82 paise, or 1.38 per cent, in the past three days.
The benchmark S&P BSE sensex added 233 points, or 1.22 per cent. FIIs pumped Rs 164.56 crore in equities on Thursday, according to provisional data with stock exchanges.
"Yesterday's mixed economic reports from the US and high expectations from the Hindustan Unilever buyback offer contributed to the volatility in rupee today," said Abhishek Goenka, Founder & CEO of India Forex Advisors. "The RBI governor's comments further put pressure on the rupee. His comments suggested that the central bank is unlikely to defend any particular level, which dented sentiment."
The dollar index was up by 0.12 per cent against a basket of six major global rivals following a flare-up in the euro-zone's financial crisis as the European Central Bank prepared to announce its decision on monetary policy on Thursday.
Meanwhile, premium for forward dollar reacted downwards due to fresh receipts by exporters.
Benchmark six-month forward dollar premium payable in December declined to 172-1/2-174-1/2 paise from overnight close of 179-1/2-181-1/2 paise. Far-forward contracts maturing in June also dropped to 349-1/2-351-1/2 paise from 359-1/2- 361-1/2 paise.
RBI fixed the reference rate for the US dollar at 60.0905 and for the euro at 78.0787.
Rupee recovered sharply against the pound sterling to 90.74 from Wednesday's close of 91.90 and also turned positive against the Japanese yen to end at 60.27 per 100 yen from 60.60.
However, it remained negative against the euro to 78.17 from previous close of 78.02.