The Indian rupee advanced against the U.S dollar on Tuesday as the rescue of failed lender Silicon Valley Bank (SVB) calmed worries about a larger fallout in the sector, with fiscal year-end related factors also supporting the local currency.

The rupee finished at 82.1875 per dollar, against its previous close of 82.37, getting a boost from the carry return of running short dollar positions on account of the upcoming change in the fiscal year.

Most Asian currencies and stocks rose as the dollar index dipped, while European shares gained as fears over a banking crisis abated to an extent after the U.S. regulator backed a deal by First Citizens BancShares to buy out SVB.

Further, top U.S. banking regulators said late on Monday they planned to tell Congress that the overall financial system remains on solid footing after recent bank failures, but they would comprehensively review their policies.

"A powerful cocktail of risk-on sentiment, a declining dollar index and year-end inflows of Indian corporations" was helping the rupee, said Anindya Banerjee, head of research - FX and interest rates, at Kotak Securities.

"Moreover, large speculative bets may be off limits because it is the conclusion of the financial year."

Exporters were likely selling dollars ahead of the close of the fiscal year-end and importers took advantage of the dip in USD/INR to add hedges, a trader with a private bank said.

Meanwhile, analysts at foreign banks, such as Barclays and Citi, reckoned that the rupee would have a better fiscal 2024, as they expected the currency to head towards 80 per dollar levels gradually, owing to India's improving current account picture.

On Tuesday, rupee premiums declined across the curve as traders said they were on the receiving end amid better-than-expected liquidity. (Reporting by Anushka Trivedi; Editing by Sonia Cheema)