Forex dealers attributed the uptick in the rupee to reports of rollback of recently imposed a higher tax on foreign portfolio investors.

"This news came in as a big relief for the domestic currency as well as for equity markets. Huge short-covering rally was seen in the domestic equity markets," Press Trust of India quoted V K Sharma, head-PCG & capital market strategy, HDFC Securities, as saying. However, the rupee will witness high volatility till official confirmation of the news comes, he added.

After the Budget announcement to increase income tax surcharge on super-rich including FPIs, foreign investors have sold equities worth $2.73 billion on a net basis till date, Mr Sharma said.

However, foreign institutional investors (FIIs) remained net sellers in the capital markets, pulling out Rs 437.39 crore on Thursday, NSE's provisional data showed.

Market participants noted that the Reserve Bank of India's move on the key interest rates and comments on liquidity also provided support to the currency markets, said the PTI report.

The Sensex jumped as much as 750 points from the day's lowest level in the last hour of trade amid reports that the government is likely to withdraw higher surcharge on foreign portfolio investors.

The S&P BSE Sensex ended 637 points or 1.74 per cent higher at 37,327 and the NSE Nifty50 index jumped 1.63 per cent or 177 points to settle at 11,032.

The dollar index, which gauges the greenback's strength against a basket of six currencies, inched up 0.02 per cent to 97.56. Meanwhile, the 10-year government bond yield was at 6.40 per cent on Thursday.

Brent crude futures, the global oil benchmark, climbed 1.14 per cent to $56.87 per barrel.