At 11:42 a.m. (0612 GMT), the partially convertible rupee was at 44.3825/3850 per dollar, up from at its previous 44.425/435 close, having risen as much as 44.3350 -- its highest since May 3.

"USD/INR is gaining on the back of strong portfolio inflows," said Ashtosh Raina, head of forex trading at HDFC Bank.

Foreign funds have pumped in nearly $2 billion in eight sessions to July 4.

Indian shares edged 0.1 percent higher in choppy trade on Wednesday, helped by firm Asian markets, with mortgage lender HDFC and top telecoms operator Bharti Airtel leading the gains.

The euro regained some ground on Wednesday as short-term players covered short positions ahead of a European Central Bank policy meeting, following a steep fall against the Swiss franc and the dollar after Moody's slashed Portugal's credit rating to junk.

Most Asian currencies were stronger than the US dollar on Wednesday. See for a snapshot.

Some dealers said the gap between onshore and offshore forwards was also resulting in dollar inflows.

"If you look at either three-month or one-month forwards, there is a big gap which is creating arbitrage opportunity and providing dollars here," a senior forex dealer at a private bank said.

The one-month onshore forward premium was at 44.62 per dollar while the non-deliverable forward contracts were quoted at 44.44 per dollar. The three-month onshore forward premium was at 45.15 per dollar compared with 44.83.

In the currency futures market , the most traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange were all at 44.5525, with total volume at $3.97 billion.

Copyright Reuters, 2011