At 12:45 p.m. (0715 GMT), the partially convertible rupee was at 54.79/80 per dollar, after hitting 54.75, its strongest level since May 22. The rupee had closed at 55.43/44 on Monday.
The one-month offshore non-deliverable forward contracts were quoted at 55.12 per dollar, as compared to 55.75 at close on Monday.
The government last week increased foreign investor limits in government debt by $5 billion to $20 billion and the increased limits will be auctioned by the stock market regulator on Wednesday.
Portfolio investors too have turned bullish after the Indian government released draft rules last week and said the general anti avoidance rules, or GAAR, would not apply retroactively, a big concern for such investors.
Foreign investors were net buyers of 5.91 billion rupees worth of shares on Monday, provisional NSE data showed.
India's main share index was trading up 0.4 percent.
The rupee rise is also because exporters are finally converting their earnings as they realize the party of weak rupee isn't lasting longer.
The rupee has now turned to Asia's best performing currency on 5 day basis, up 3.5% with various agencies now bullish on the Indian unit with calls coming in for rupee to further gain upto 54-52 levels this month, with its bouts of weakness capped to 57.
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