The rupee appreciated by 26 paise to 69.00 against the US dollar in early trade on Tuesday driven by weakening of the greenback in overseas markets and sustained foreign fund inflows.
Forex dealers said, selling of the American currency by exporters, fresh foreign fund inflows and easing crude oil prices supported the rupee.
At the interbank foreign exchange, the rupee opened on a weak note at 69.10, but gathered momentum and rose to a high of 69.00 against the US dollar, showing 26 paise gain over its previous closing.
The local unit, however, pared some gains and was quoted at 69.13 against the American currency at 0949 hrs. The rupee had settled at 69.26 against the US dollar on Monday.
Forex traders said the rupee strengthened on expectation of a rate cut in key policy rates by the Reserve Bank of India.
Meanwhile, foreign institutional investors (FIIs) remained net buyers in capital markets, putting in Rs 3,068.88 crore on Monday, according to provisional exchange data. Brent crude futures, the global oil benchmark, fell 0.31 per cent to trade at USD 61.09 per barrel.
Domestic bourses opened on a cautious note on Tuesday with benchmark indices Sensex trading 58.44 points down at 40,209.18 and Nifty down 19.75 points at 12,068.80.