The rupee appreciated by 27 paise to 71.07 against the US dollar in early trade on Friday as gains in domestic equity market enthused investors.
At the interbank foreign exchange, the rupee opened at 71.19, then gained further ground and touched a high of 71.07, registering a rise of 27 paise over its previous close.
Rupee had settled at 71.34 against the US dollar on Thursday.
Forex traders said weakening of the US dollar vis-a-vis other currencies overseas and a higher opening in domestic equities supported the rupee.
Domestic bourses opened on a positive note on Friday with benchmark indices Sensex trading 78.80 points higher at 36,172.27 and Nifty up 13 points at 10,717.80.
The dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.04 per cent to 98.23.
Market participants, however, said sustained foreign fund outflows and rising crude prices weighed on local currency.
Foreign institutional investors (FIIs) remained net sellers in the capital market, pulling out Rs 892.52 crore on Thursday, according to provisional exchange data.
Brent crude futures, the global oil benchmark, rose 0.31 per cent to trade at USD 64.60 per barrel.
The 10-year government bond yield was at 6.57 per cent in morning trade.