The rupee pared some of its early gains to settle marginally up by 3 paise at 74.99 against the US dollar on Thursday tracking weakness in the greenback and gains in the domestic equity market.
Forex traders said positive domestic equities and weak US currency supported the local unit, while foreign fund outflows and concerns over rising COVID-19 cases weighed on investor sentiment.
The rupee opened at 74.94 against the US dollar and touched a high of 74.91 to the dollar in day trade.
The local unit finally settled at 74.99 against the US dollar, up 3 paise over its previous close of 75.02.
Indian benchmark stock indices rose to four-month highs on smart gains in finance and banking counters amid buoyancy in global markets. The 30-share BSE Sensex settled 408.68 points, or 1.12 per cent, higher at 36,737.69 while NSE Nifty jumped 107.70 points, or 1.01 per cent, to 10,813.45.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.02 per cent to 96.40.
Foreign institutional investors were net sellers in the capital market as they sold shares worth Rs 994.87 crore on Wednesday, according to provisional exchange data.
Brent crude futures, the global oil benchmark, fell 0.23 per cent to USD 43.19 per barrel.
Meanwhile, the number of cases around the world linked to COVID-19 has crossed 1.20 crore and the death toll has topped 5.49 lakh.
In India, the death toll due to the disease rose to 21,129 and the number of infections spiked to 7,67,296, according to the health ministry.
The gain in the domestic currency was supported by weaker dollar index, stronger Chinese Yuan and risk-on sentiment, Devarsh Vakil, Deputy Head Retail Research, HDFC Securities said.
"The US dollar has continued to weaken during the Asian trading session with USD/CNY falling back below the 7.0000-level and reaching its lowest level since the middle of March," Vakil said.
He further said that the dollar index is under renewed pressure as equities continued to shrug off grim pandemic news.
"In near term, spot USDINR has a support at 74.50 and resistance at 75.50 with negative bias amid risk-on sentiments and foreign fund inflows," he said.
Meanwhile, the Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 75.0270 and for rupee/euro at 84.5399. The reference rate for rupee/British pound was fixed at 94.1229 and for rupee/100 Japanese yen at 69.75.