MUMBAI: The Indian rupee posted its biggest single-day gain in more than eight months on Friday amid heavy dollar inflows and a sharp rally in domestic equity markets to fresh record highs.

The rupee ended at 83 against the US dollar, up 0.4% on the day, its best single-day performance since April 5.

The local unit logged its biggest weekly gain since Aug. 25, rising 0.4%.

Dollar sales from large foreign banks, likely on behalf of custodian clients, helped the rupee gain on Friday, traders said.

Benchmark Indian equity indexes, the Nifty 50 and BSE Sensex closed higher by 1.29% and 1.37%, respectively.

Overseas investors have bought Indian equities worth $5.1 billion in December so far, marking the strongest month of equity inflows since July.

While the rupee’s initial gain was driven by dollar inflows, it was further magnified by the squaring of speculative positions, a foreign exchange trader at a state-run bank said.

Equity inflows related to the rebalancing of FTSE’s Emerging All Cap index also helped the rupee, the trader added. India’s merchandise trade deficit narrowed in November to $20.58 billion, down sharply from $31.46 billion in October, according to data released by the government on Friday.

“We expect the rally in the rupee could further move towards 82.70 to 82.75 in the coming days,” Dilip Parmar, a foreign exchange research analyst at HDFC Securities said.

Most Asian currencies were steady while the dollar index inched up to 102 in Asia hours.

While the rupee has broadly underperformed its key Asian peers amid weakness in the US dollar, the Indian currency was the best performer on Friday.