The rupee erased early losses and was stronger on Thursday, helped by a firmer stock market, although traders said dollar demand from oil importers could limit gains.
At 10:26 a.m. (0456 GMT), the rupee was at 52.8150/8200 to the dollar, up 0.3% from Wednesday's close of 52.95/96, after moving in a 52.74 to 53.05 band. Traders expect it to trade in a 52.70-53.10 band for the day.
"There are some dollar flows in the market, with both state-run and foreign banks selling, while shares are also positive," a dealer at a state-run bank said.
Some exporters were selling dollars, a trader at a private bank said.
The Sensex rose 0.4% early on Thursday, with ONGC up 1% after the state-run oil explorer said it had discovered four new potential hydrocarbon reserves in the country's west and northeast.
The rupee was the worst performer among Asian currencies in 2011, losing about 16% of its value, as foreign funds withdrew on concerns about India's high current account deficit, slowing growth and sticky inflation.
"The risk of USD/INR revisiting its high at the end of 2011 remains acute in the first half of 2012," said Andy Ji, Asian currency strategist for Commonwealth Bank of Australia in Singapore.
The rupee hit an all-time low of 54.30 in mid-December.
"It is more a structural issue which requires more fundamental shifts in policies, such as lifting potential growth through more investments and faster productivity growth," Ji said.
The stability of the rupee is the main concern for the Reserve Bank of India, Deputy Governor Subir Gokarn said on Thursday.
One-month offshore non-deliverable forward contracts were quoted at Rs 53.11.
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 were all around 53.08, on total volume of $905 million.