The Reserve Bank of India (RBI) will release its monetary policy review at 11:15 a.m. (0545 GMT).

At 9:40 a.m., the partially convertible rupee was at 48.88/89 per dollar, 0.8 per cent stronger than its previous close of 49.27/29. In early trade the unit rose to 48.845, its strongest since Jan. 19.

"The rupee is higher tracking the G7 currencies and equity markets," said L.Subramanian, chief dealer at ICICI Bank, adding the rise was reflecting the dollar's drop against majors on Monday when Indian markets were closed for a holiday.

He forecast the rupee to trade in a band of 48.70 to 49.05 during the session.

Dealers said they were not expecting any major changes in the RBI's monetary policy and the market was likely to watch the stocks for cues on foreign fund flows.

A slight majority of analysts expect the RBI to hold its key lending rate steady although a cut is expected before the end of March, a Reuters poll showed.

Stocks are expected to start higher on Tuesday, with banks in focus.

However, foreign investors have so far this month pulled out nearly $1 billion from Indian shares after withdrawing more than $13 billion in 2008.