A euro zone deal on how to contain the two-year old debt crisis boosted risk appetite globally, helping Kenyan assets. The shilling tends to track the euro, which rallied on news of the deal, as Europe is a key export market for Kenya.

At 0745 GMT, commercial banks quoted the shilling at 100.20/100.40 against the dollar, stronger than Wednesday's close of 100.90/101.10.

"We expect the shilling to strengthen on the euro after (euro zone leaders) came up with a rescue plan. Tea sector guys also sold dollars and that is shilling positive," said Sameer Lagadia, head of trading at Diamond Trust Bank.

Traders said liquidity in the market had tightened as the central bank mopped up shilling liquidity through repurchase agreements and offshore players have stayed out of the market since the central bank recently imposed trading rules for them.

On the money markets, the weighted average interbank lending rate rose to 19.4888 percent on Wednesday and the central bank set the discount window rate at 20.49 percent for any commercial bank that will borrow from it on Thursday.