Rupee gained on Tuesday after a volatile trading session as dollar selling by custodian banks and a large corporate helped offset importer demand for the greenback.
Traders said gains were also helped by higher Asian currencies on the back of strength in the Japanese yen and a rebound in the Chinese yuan.
But sentiment is expected to turn more cautious ahead of the upcoming July-September economic growth data on Friday and the Reserve Bank of India's monetary policy review on Dec. 2.
India's economic growth probably slowed to around 5 percent in the three months to September, slipping from 5.7 percent in the previous quarter, two senior finance ministry sources told Reuters, putting pressure on the central bank to cut interest rates.
"There was good dollar buying interest seen from importers but good flows with custodian banks helped. We could see this seesaw in the rupee continue until the policy," said Vikas Babu Chittiprolu, a senior foreign exchange dealer with Andhra Bank.
The partially convertible rupee closed at 61.86/87 per dollar versus Monday's close of 61.9350/9450.
Traders are broadly expecting the rupee to hold in a 61.50 to 62.50 range until the RBI policy next Tuesday, with most expecting no change in interest rates but only a more dovish policy tone from the RBI.
However, gains in the rupee were capped as shares fell, retreating from a record high hit earlier in the session as financial firms slumped on worries parliament would delay an insurance bill, while new rules for offshore derivatives raised worries over foreign flows.
In the offshore non-deliverable forwards, the one-month contract was at 62.16 while the three-month was at 62.27.
