The rupee rose by 20 paise to 81.50 against the US currency in morning trade on Wednesday following a weak dollar in the global markets.
Early losses in domestic stock markets and a rebound in oil prices, however, restricted the rupee's gains.
At the interbank foreign exchange, the rupee opened higher at 81.62 and rose further to a high of 81.49 in morning trade.
The rupee was trading at 81.50 to a dollar at 0950 hrs. The local currency had closed lower at 81.70 on Tuesday.
The US dollar index, which gauges the greenback's strength against a basket of six currencies, slipped 0.04 per cent to 101.88.
The Brent crude was trading 0.43 per cent lower at USD 86.48 per barrel while the oil for the Indian basket traded down 2.69 per cent at USD 79.98 per barrel.
On the domestic equity market front, the 30-share BSE Sensex declined by 268 points or 0.44 per cent to 60,709.93. The broader NSE Nifty declined by 90.25 points or 0.5 per cent to 18,028.05.
Foreign Institutional Investors (FIIs) were net sellers in the capital market on Tuesday as they sold shares worth Rs 760.51 crore, according to exchange data.
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