On Tuesday, the rupee had closed at a six-month low of 71.71 a dollar.

The rupee on Wednesday clawed back some lost ground to close at 71.55, up 16 paise against the US dollar in line with stronger emerging market currencies. Starting off on a bullish note, the rupee surged to a high of 71.36 per dollar during the day before settling at 71.55, clocking a gain of 16 paise. On Tuesday, the Indian unit had closed at a six-month low of 71.71 a dollar. The recovery in rupee was seen despite headwinds in form of economic uncertainties, FDI outflows and rise in global crude oil prices, according to forex traders.

Besides, investors continued to fret over long-lasting US China trade war. Meanwhile, foreign investors pulled out Rs 770.81 crore from Indian equities on Wednesday, as per exchange data.

Continuing its rise, the global crude benchmark Brent Futures rose 1.6 per cent to trade at $60.99 per barrel on Wednesday.

Aiding in rupee recoup, the dollar index -- which gauges the greenback's strength against a basket of six currencies -- fell 0.01 per cent to 98.18. The 10-year government bond yield was down at 6.57 per cent on Wednesday.

"Despite brent crude price rising for last four consecutive sessions and higher dollar index levels, the rupee managed to recoup some of the losses registered in the previous two sessions," V K Sharma, head PCG & capital markets strategy, HDFC Securities, said.

Emerging market currencies advanced as investors assessed the latest remarks from the US on trade talks with China, he said adding that trading was muted ahead of the US Federal Reserve's July meeting minutes and Jackson Hole symposium later in the week.

Meanwhile, Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 71.6483 and for rupee/euro at 79.3682. The reference rate for rupee/British pound was fixed at 86.7809 and for rupee/100 Japanese yen at 67.27.

Contrary to rupee rebound, the 30-share BSE Sensex settled 267.64 points or 0.72 per cent lower at 37,060.37; while the broader NSE Nifty shed 98.30 points or 0.89 per cent to finish at 10,918.70.