The rupee gained 11 paise to close at 81.57 (provisional) against the US dollar on Thursday, tracking the overall weakness in the American currency.
However, a muted trend in domestic equities and sustained foreign fund outflows capped the gains in the rupee, traders said.
At the interbank foreign exchange market, the local unit opened strong at 81.54, but lost ground to quote an intraday low of 81.74 against the greenback.
It finally ended at 81.57 (provisional), registering a rise of 11 paise over its previous close.
On Wednesday, the rupee settled at 81.68 against the US dollar.
The dollar index, which gauges the greenback's strength against a basket of six currencies, declined 0.17 per cent to 103.01.
Global oil benchmark Brent crude futures rose 0.92 per cent to USD 83.44 per barrel.
On the domestic equity market front, the 30-share BSE Sensex declined 147.47 points or 0.25 per cent to end at 59,958.03, while the broader NSE Nifty fell 37.50 points or 0.21 per cent to 17,858.20.
Foreign Institutional Investors (FIIs) were net sellers in the capital market on Wednesday as they offloaded shares worth ₹3,208.15 crore, according to exchange data.