Forex market sentiment remained becalmed for yet another day, hampered by lack of key triggers amid general wariness ahead of the Federal Open Market Committee (FOMC) meet next week.
Healthy capital inflows into upbeat domestic equity markets on the back of better macro fundamentals largely helped the rupee to consolidate its gains, a forex dealer said.
Foreign funds infused a net Rs 564.15 crore in Indian equities on Monday as per the provisional figures.
Meanwhile, global rating agency Fitch on Tuesday said the Indian economy will grow by 7.1 per cent in the current fiscal year before stepping up to 7.7 per cent in the next two financial years.
The domestic unit resumed higher at 66.67 from Monday's close of 66.71 at the interbank foreign exchange (forex) market. The home currency closed at 66.67 - a level last seen on 10 November.
It remained largely range-bound and hovered between 66.59 and 66.6925 during the most part of the day before ending at 66.67, revealing a gain of 4 paise, or 0.06 per cent.
Strengthening for the second straight day, the domestic unit has appreciated by 14 paise.
On the global front, the dollar steadied against a basket of currencies in early European trade.
The US dollar index was trading marginally up at 101.77 in late afternoon session.
The Reserve Bank of India fixed the reference rate for the dollar at 66.6347 and for the euro at 70.5595.
In cross-currency trade, the rupee recovered against the British pound and finished higher at 81.27 from 81.76 and also bounced back against the euro to settle at 70.50 from 70.59 earlier.
It also recouped against the Japanese yen to close at 58.50 as compared to 58.62 on Monday.
Meanwhile, equities succumbed to modest profit-taking after Monday's spectacular rally which propelled the key benchmark indices to hit two-year highs as investors assessed the likely impact of a Fed rate hike next week amid renewed geopolitical tensions.
The benchmark Sensex declined by 48.63 points to end at 28,999.56, while broader Nifty shed 16.55 points to settle at 8,946.90.
In the forward market, premium for dollar continued to drift on persistent receivings from exporters.
The benchmark six-month premium for August moved down to 155-157 paise from 157-159 paise and the far-forward February 2018 contract also edged lower to 312-314 paise from 314-316 paise on Monday.
On global commodity front, crude prices remained under selling pressure in Asian trade on Tuesday after the International Energy Agency (IEA) forecast US shale output to grow at about 1.4 million barrels per day by 2022 and also concerns over lower growth targets in China.