The rupee recovered on Thursday from the session's low to end firmer as traders set aside concerns caused by a jump in crude prices, choosing to focus on a rallying stock market driven by foreign inflows.
Indian shares rose to a new record high on expectations of healthy corporate profits and bolstered by a reassurance on reforms to foreign investors from the country's finance minister.
Indian Finance Minister Palaniappan Chidambaram said in an interview with Reuters he expects a resolution soon to problems stalling stake sales in state-run firms and that there is no sign of a speculative bubble in equities.
The rupee ended at 43.8950/9000 per dollar, off an intra-day low of 43.97 which was its lowest in nine days, and marginally firmer than the previous close of 43.90/91.
"The rally in the stock market and the absence of strong dollar demand from importers saw a lot of banks liquidating long (dollar) positions, helping the rupee to gain," said a senior foreign exchange dealer at a foreign bank.
Foreign fund flows into domestic stocks have been a key support to the rupee, which analysts say is overvalued by 8 percent on a trade-weighted basis. The latest data showed foreign funds bought $36.4 million worth of Indian shares on Wednesday, with net sales recorded on only one day so far in September.