MUMBAI - The Indian rupee strengthened on Tuesday, as risk sentiment improved due to a retreat in U.S. yields and the dollar after softer-than-forecast manufacturing data in the world's biggest economy.
The rupee was trading up 0.56% at 81.41 per dollar, outperforming its Asian counterparts, as the dollar index eased 0.1% in morning trade.
That marks a recovery from Monday when climbing oil prices pushed the local unit closer to its record low of 81.95 once again, with traders saying the Reserve Bank of India had to intervene to provide support.
That was the third instance in the last four sessions that the rupee has dropped to near the 82-per-dollar level.
Traders believe Tuesday's gains would be temporary as concerns around inflation, rate hikes and rising oil prices hadn't yet gone away.
"Until fundamentals remain unchanged, the artificial strength in the currencies pumped through intervention could remain short-lived," said Amit Pabari, managing director at CR Forex Advisors.
For the USD/INR pair, a dip near 81.20 could be bought heavily as it's a support level, while 82.00 will remain a resistance created by the RBI, Pabari added.
In a sign that the Federal Reserve's rate hikes may be cooling demand for goods, a survey showed U.S. manufacturing activity in September was the slowest in nearly 2-1/2 years.
That prompted U.S. benchmark yields to extend declines and the dollar to fall for fourth straight day.
Indian stocks soared over 2%, tracking sharp gains on Wall Street overnight, as rate-sensitive stocks rallied, although rebounding oil prices remained a key risk.
Brent crude futures were seen creeping towards $90 per barrel a day before producer club OPEC+'s meeting where output cuts are expected.
(Reporting by Anushka Trivedi in Mumbai; Editing by Savio D'Souza)