The latest Fed policy-meeting minutes had cemented expectations of more aggressive US rate hikes this year.
Expectation of robust capital inflows into local equity and debt markets apparently uplifted the trading mood, a forex dealer commented.
The rupee had breached the significant 65-mark to end at a fresh 3-month low of 65.04 yesterday due to spurt in dollar demand as importers rushed to cover unhedged positions amid fears over an imminent Fed rate hike.
At the interbank foreign exchange market, the home currency started on a strong footing at 64.95 as compared to 65.04 previously.
Maintaining its strong recovery momentum, it touched a fresh session high of 64.69 in late afternoon deals before ending at 64.73, revealing a smart gain of 31 paise, or 0.48 per cent.
For the week, the Indian unit depreciated sharply by 52 paise against the greenback.
The RBI, meanwhile fixed the reference rate for the dollar at 64.8227 and for the euro at 79.7643.
On the international energy front, global crude prices surged to a fresh two-week high largely boosted by data showing a surprise draw in U.S. crude inventories also supported by a dramatic fall in Venezuelas oil output despite production restraint led by the Organisation of the Petroleum Exporting Countries (OPEC) and Russia.
Brent crude futures were trading little soft at USD 65.69 a barrel in early Asian trading.
Meanwhile, domestic bourses staged a sound recovery from their recent correction on the back of smart buying at existing lower levels along with some short-covering bounce in key front-line counters as the March derivatives series kicked off on a strong note.
A combination of stronger Asian cues along with higher Wall Street close further bolstered trading mood.
The flagship BSE-sensex shot up by 323 points to end at 34,142.15, while Nifty jumped 108 points at 10,491.05.
Globally, the US dollar traded little changed against other major currencies on Friday.
The dollar index, which measures the greenback's value against a basket of six major currencies, was up at 89.75 in early trade.
In cross-currency trades, the rupee edged lower against the pound sterling to finish at 90.25 per pound from 90.18, but bounced back against the euro to end at 79.59 as compared to 79.88 yesterday.
The local unit, however held steady against the Japanese yen at 60.59 per yens.
Elsewhere, the Pound sterling wobbled against the greenback after a two-day rally following a marginal downgrade in the UKs Q4 economic growth data.
The common currency euro slipped against the US dollar after final data from Eurostat showed inflation slowed slightly to 1.3 per cent in January from 1.4 per cent in December as estimated.
In forward market today, premium for dollar displayed a steady trend owing to lack of market moving factors.