The rupee, which resumed trading following the extended weekend, was at 81.7600 per U.S. dollar by 11:02 a.m. IST, up from 81.8250 in the previous session.
Foreign investors were net buyers of about $400 million worth of Indian equities on Friday, according to preliminary data from the BSE website. This was after investing about $430 million on Thursday.
The BSE Sensex on Tuesday reached its highest levels since mid-February.
Most Asian currencies were trading lower tracking the overnight uptick on the dollar index. The rise in U.S. yields, following U.S. manufacturing and construction data, supported the dollar versus its major peers.
The rupee is doing well thanks to the inflows and Indian equities, a forex sales official at a private bank said. Whether the 81.60 (support on USD/INR) will be taken out will depend on what happens after the Federal Reserve meeting, he added.
The two-day Fed meeting will get underway later in the day, following which the U.S. central bank is expected to raise rates by 25 basis points. Economists at ING Bank reckon that this could be the final rate hike.
"Inflation remains 'unacceptably high', but banking stresses are leading to a tightening of lending conditions," James Knightley, chief international economist at ING, said in a note.
"While the Fed will leave the door ajar for further hikes, the need for higher policy rates is highly questionable."
Forex markets go into Wednesday's Fed meeting wary of the simmering U.S. bank crisis and U.S. debt ceiling negotiations, ING noted.
(Reporting by Nimesh Vora; Editing by Janane Venkatraman)
By Nimesh Vora
