The deal failed to buoy the dollar, which fell against a basket of currencies as investors worried about the economic impact from the more than two-week US government shutdown. (Agencies)
Gains in other Asian currencies also supported sentiment for the rupee. Asian units rose on expectations that the Federal Reserve would hold off from withdrawing monetary stimulus at least until the beginning of next year.
Still, the Sensex fell after software services exporters such as Tata Consultancy Services retreated from recent highs due to profit-taking.
"The overall USD weakness helped the rupee and we could see this rally last for some more time. May be a test of 60 is imminent," said Hari Chandramgethen, head of foreign exchange trading at South Indian Bank.
"Medium-term negatives like the Fed taper, elections remain but the market is slowly digesting those facts. I expect 59-60 levels to get supported and good demand will be seen from those levels," he added.
The partially convertible rupee closed at 61.23/24 per dollar compared with 61.8350/8450 on Tuesday. The unit moved in a range of 61.20 to 61.73 during the session.
Financial markets were closed on Wednesday for a local holiday.
In the offshore non-deliverable forwards, the one-month contract was at 61.64, while the three-month was at 62.61.
In the currency futures market, the most-traded near-month dollar/rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange all closed at around 61.36 with total traded volume at USD 2.05 billion.
The deal failed to buoy the dollar, which fell against a basket of currencies as investors worried about the economic impact from the more than two-week US government shutdown.