MUMBAI: Cutting short the overnight steep fall, the rupee recovered smartly to close 26 paise up at 40.60/61 against the U.S. currency on Thursday, following heavy capital inflows amid lack of month-end dollar demand. In active trade at the interbank foreign exchange market, the Indian unit opened strong at 40.76/77 a dollar from Wednesday's close of 40.86/87 a dollar and later touched a low of Rs 40.80 on stray dollar demand from oil refinery companies.