The rupee washed out major part of its initial gains on late dollar demand, closing just 2 paise higher at 45.30/31 against the U.S. currency on smart recovery in local equities amid a weak greenback overseas.
Dealers attributed initial rally in the rupee value to smart rebound in local stocks amid weak dollar overseas as well as some dollar selling by exporters.
Importers generally bought dollar at the fag end of month to meet their month-end requirements, a Forex dealer said.
The Bombay Stock Exchange benchmark Sensex on Thursday bounced back by over 197 points or 1.11 per cent after falling by nearly 165 points or 0.91 per cent on Wednesday.
The dollar index was down by 0.4 per cent against a basket of currencies while U.S. crude oil was trading below $101 a barrel in European market on Thursday.
Meanwhile, food inflation surged to a one-month high of 8.55 per cent for the week ended May 14 from 7.47 per cent in the preceding week.
In a see-saw trade at the Interbank Foreign Exchange (Forex) market, the domestic unit opened strong at 45.23/24 a dollar from previous three-month closing low of 45.32/33 and immediately touched a high of 45.20.