The currency of East Africa's largest economy closed at 89.25/35 to the dollar, firmer than Monday's close of 89.35/45.
Investors seeking to take up a 12-year government infrastructure bond worth 20 billion shillings ($224 million), the proceeds of which will partly be used to fund expansion of Kenya's main airport, had buoyed the shilling, traders said.
A senior trader at one commercial bank said the shilling reached an intra-day high of 89.15/25 on anticipation of hard currency inflows attracted by the infrastructure bond.
The central bank said it had mopped up a total 6.5 billion shillings in excess liquidity. The action makes it costlier to hold long dollar positions and helps bolster the shilling.
However, the shilling lost some ground after importers bought dollars, the trader said.
Traders said the shilling could come under pressure from energy and telecommunication sectors, but this could be mitigated by hard currency inflows from investors in the bond.
The shilling was expected to trade in the 88.80 to 89.50 range in the next few days, traders said.
Hard currency inflows have taken a knock for much of the year, largely because of a sharp drop in tourist arrivals after a spate of Islamist attacks on the coast and elsewhere.
Dollar inflows from tea, another key source of hard currency, have dwindled due to a global glut of the commodity.
On the Nairobi Securities Exchange, the main NSE-20 Share Index rose 24.49 points or 0.47 percent, to close at 5,198.89 points.
British American Investments (Britam) helped push the index higher after rising 6.9 percent to 27.25 shillings a share, while Kenya Commercial Bank was up 1.9 percent to end the session at 54.50 shillings.
Virginia Wairimu, research analyst at Suntra Investment Bank, said Britam was seen as a bargain after a recent decline.
The share has fallen in recent weeks after Britam missed out on a lucrative property deal to a rival firm.
The expectation of strong third quarter earnings had buoyed KCB, Wairimu said. The bank is due to issue its results soon.
On the secondary market, government bonds valued at 4.2 billion shillings were traded, higher than 1.38 billion shillings traded on Monday.