On a weekly basis, the domestic currency, however, lost 30 paise against US dollar. The Indian currency has appreciated by 67 paise in the last three trading sessions. (Also Read: Sensex Surges 337 Points, Nifty Settles Above 10,900)

"Indian rupee appreciates for the third day in row as risk appetite is back with US-China trade optimism. Strong Equity markets across Asia and weakened US dollar overseas have been supporting the rupee," news agency Press Trust of India quoted V K Sharma, head PCG & capital markets strategy at HDFC Securities as saying.

Mr Sharma further said that USD/INR is expected to gain in coming holiday truncated week with downside support at 71.40 and resistance at 72.25.

The rupee had settled at 71.84 against the US dollar on Thursday. In a major boost to investor sentiment globally, China and the US have agreed to hold the next round of trade negotiations in Washington in early October to end the bruising trade war.

The Indian currency gained following easing crude oil prices, PTI quoted forex traders as saying.

Brent crude futures, the global oil benchmark, fell 2.23 per cent to trade at $59.59 per barrel. Market participants, however, said sustained foreign fund outflows and strengthening of the American currency weighed on the local currency.

Foreign institutional investors (FIIs) remained net sellers in the capital market, pulling out Rs 561.17 crore on Thursday, according to provisional exchange data.

The dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.09 per cent to 98.49. The 10-year government bond yield was at 6.60 per cent on Thursday.

On the domestic market front, the 30-share index ended 337.35 points, or 0.92 per cent, higher at 36,981.77. Similarly, the broader NSE Nifty settled 98.30 points, or 0.91 per cent, higher at 10,946.20.