MUMBAI - The Indian rupee closed marginally higher against the dollar in range-bound trading on Tuesday as investors braced for a likely jumbo-sized rate hike by the U.S. Federal Reserve and its impact on dollar inflows.

The rupee closed at 79.75 per U.S. dollar, a tad higher from 79.77 in the previous session. It traded in a 79.5925-79.7675 range today, almost similar to Monday.

Apart from the actual Fed rate decision, traders will be watching for the impact it has on portfolio flows, said Arnob Biswas, head FX research at SMC Global Securities.

Biswas pointed out that foreign portfolio inflows of nearly $8 billion since August have helped the rupee "maintain the divergence between dollar broad strength and rupee stability."

The Fed on Wednesday is expected to deliver a third straight 75 basis points hike after surprisingly higher August inflation data. There is a small possibility that the U.S. central bank may even opt for a bigger 100-basis-point increase.

It is also expected that Fed officials will revise higher its peak rate forecasts. Chair Jerome Powell's comments will be closely scanned for the Fed's thinking on the conditions needed to slow down its policy tightening.

The U.S. bond market indicated that traders were bracing for a hawkish move. The 10-year U.S. yield climbed above 3.50% and the 2-year to 3.98%, both multi-year highs.

Risk appetite in Asia held up well to U.S. yields. Indian equities climbed 1%.

Oil prices inched higher and the dollar index was hovering near 109.80. Rupee forward premiums did not respond much to moves in Treasury yields.

(Reporting by Nimesh Vora; Editing by Saumyadeb Chakrabarty)