The rupee gained 2 paise to close at 83.95 (provisional) against the US dollar on Friday amid a weak greenback in overseas markets.
However, negative domestic markets, rise in crude oil prices, and outflow of foreign capital capped sharp gains, forex traders said.
At the interbank currency market, the local unit opened at 83.97 and witnessed an intra-day high of 83.91 against the American currency.
The unit, which traded in the range of 83.91-83.97, finally settled at 83.95 (provisional), registering a gain of 2 paise. It had closed at 83.97 on Tuesday.
"The Indian rupee recovered today on a weak US dollar. However, weak domestic markets capped sharp gains," Anuj Choudhary, Research Analyst at Sharekhan by BNP Paribas, said.
"We expect rupee to trade with a slight negative bias on weak global equities and concerns over global economic growth," he said, adding that the USD-INR spot price is expected to trade in a range of ₹83.70 to ₹84.20.
Traders may take cues from non-farm payrolls report and speeches by the US Federal Reserve's rate-setting panel members, he added.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was down 0.14 per cent to 100.96 points.
Brent crude, the international benchmark, gained 0.58 per cent to $73.11 per barrel in futures trade.
In the domestic equity markets, Sensex tanked 1,017.23 points to settle at 81,183.93, while Nifty slumped 292.95 points to 24,852.15.
Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Thursday, as they offloaded shares worth ₹688.69 crore, according to exchange data.