At 1224 GMT commercial banks quoted the currency of east Africa's third-largest economy at 2,676/2,686, stronger than Monday's close of 2,690/2,700.

"This is the last week in office for most NGOs this year so they're converting their dollars for shillings to pay for last-minute activities," said Thaib Lubega, a trader at Stanbic Bank.

Most NGOs are financed by western donors and their funds come in the form of hard currency which they have to convert to shillings to meet their expenses.

The local currency, which is down 7.5 percent against the dollar this year, is expected to trade in a tight range in the remaining weeks of this year due to the closure of most businesses.  Market participants said the shilling's outlook in the medium-term was bearish due to the central bank's monetary policy easing stance that could drive demand for imports and dollars.

The central bank trimmed its benchmark Central Bank Rate (CBR) to 12 percent last week from 12.5 percent in November, citing the need to stimulate slowing economic growth.

Still, traders said the shilling could hold its own against the dollar in the run-up to the holidays, thanks to healthy supplies of hard currencies.

"While NGOs are likely to account for much of the dollar supplies this week, Ugandans who live abroad are also coming for Christmas with dollars... that's also helping the shilling," said a trader at a leading commercial bank.