The rupee rose after Standard and Poor's (S&P) revised the outlook on India's rating to positive from stable, but gave up those gains after state banks bought dollars, possibly for the central bank, dealers said.
At 12:45 pm (0715 GMT), the rupee was quoted at 45.15/16.50 per dollar, off a high of 45.1150 struck immediately after the ratings news.
"The rupee did react positively to the S&P news, but the state-run banks did not allow it to rise much and have in fact driven down the rupee," said a senior trader at a foreign bank.
S&P's said it had revised the outlook on India's sovereign credit rating to positive from stable, citing improving prospects of the country handling its debt burden. The rating agency said in a statement it had affirmed India's BB-plus rating, which is one notch below investment grade.
Analysts say the improved outlook could draw more foreign investment into local markets, boosting the rupee in the medium term.