Opening around 42.85/88 per dollar, the rupee initially firmed up to 42.60/62 and later shot up to 42.56/57 at the close due to fresh dollar sales and unwinding of long dollar positions by banks. The Indian unit hovered around 42.54/58 for the better part of the afternoon business in relatively quiet trade dominated by dollar sellers, dealers said.

With this, the rupee has strengthened by nearly 93 paise in the last two days. The rupee gained by around 25 paise vis-a-vis the greenback today following a whopping 68 paise appreciation on Thursday after the Reserve Bank of India (RBI) adopted several measures to arrest the rupee slide and check excessive speculation in the forex market.

The rupee had earlier registered a steep depreciation of over Rs 1.06 since August 5 due to distinctly bearish sentiment for the rupee. It had plunged to an all-time low of 43.68/71 in early trade on Thursday forcing the RBI to actively intervene with its spot-dollar sales and then come out with a package of measures to halt the slump in rupee value.

RBI increased the cash reserve ratio (CRR) to 11 per cent from 10 per cent and also raised the repo rate (rate on repurchase agreements of securities) to 8 per cent from 5 per cent, reducing liquidity in the system.

``The sentiment continued to be nervous but a lot of exporters were selling and there was a fair amount of importer cancellations which saw the rupee appreciate," a dealer in a private sector bank said. Dealers said that some exporters were selling as they found it be attractive.

"The market is still reeling under Thursday's onslaught by the Reserve Bank. Although the sentiments haven't much, there is slight movement towards bullishness on the rupee," a dealer in a foreign bank said. The Reserve Bank was not present in the spot market but conducted swaps for September maturities.

However, the forward premium on dollar moved up. The one-month forward premia touched a high of 20 per cent up from 19.04 per cent on Friday in the aftermath of the RBI announcement of a series of measures to tighten short term liquidity to bring the rupee under control. The RBI along with the SBI also paid in the forward market for September maturities. Dealers said that the cash/spot premia rose to as high 30 per cent.

On the stock markets, share prices reacted today mainly on profit taking coupled selling pressure by the foreign funds. The BSE sensitive index (Sensex) dropped from the day's high of 2988.73 to 2919.45 before closing at 2922.61, with a net loss of 66.99 points against the previous close of 2989.60. The BSE-100 index lost 28.55 points to 1308.82 compared to the previous level of 1336.68.

Apart from the day's being the last session for the current settlement, the sentiment was affected by FII selling following a fresh setback in the world market, mainly in New York, London and Tokyo. Major pivotals like Reliance, ITC and others came under fresh unloading. ``Most of the market players were busy in squaring up business in view of end of trading settlement,'' said a broker.