The rupee appreciated 8 paise to 81.60 against the US dollar in early trade on Tuesday as foreign capital inflows and a firm trend in the domestic equity market boosted investor sentiments.

Besides, a weak American currency in the overseas market helped the local unit, forex dealers said.

At the interbank foreign exchange, the domestic unit opened strong at 81.58 against the dollar, then inched lower to quote at 81.60, registering a rise of 8 paise over its previous close.

In the previous session on Monday, the rupee rose 3 paise to end at 81.68 against the dollar.

The dollar index, which gauges the greenback's strength against a basket of six currencies, slipped 0.38 per cent to 106.28.

Brent crude futures, the global oil benchmark, surged 1.39 per cent to USD 84.35 per barrel.

In the domestic equity market, the 30-share BSE Sensex was trading 164.06 points or 0.26 per cent higher at 62,668.86. Similarly, the broader NSE Nifty rose 59.10 points or 0.32 per cent to 18,621.85.

Foreign Institutional Investors (FIIs) were net buyers in the capital markets on Monday as they bought shares worth Rs 935.88 crore, according to exchange data.

S&P Global Ratings on Monday cut India's economic growth forecast for the current fiscal year to 7 per cent but said the domestic demand-led economy will be less impacted by the global slowdown.