At 10:35 am, the partially convertible rupee was at 47.11/12 per dollar, 0.1 per cent below its Wednesday's close of 47.05/06.

There was some corporate demand in early trade, but there is also a lot of dollar selling in the market which should hold the rupee in a range, said Naveen Raghuvanshi, an associate vice president, at Development Credit Bank.

He said the rupee was expected to volatile in the near term, and could appreciate towards 45.50-46 by the end of March helped by capital inflows and strong fundamentals.

Shares fell more than 1 per cent in early trade, raising concerns about sustainability of portfolio inflows.

Net purchases of $14.2 billion of shares by foreigners so far in 2009 have been a key factor helping the rupee rise from a record low of 52.2 in early March.

Last year, the rupee had fallen by nearly a fifth on portfolio outflows of more than $13 billion.

The dollar index, a gauge of the US unit's performance versus six majors, was up 0.3 per cent.

The dollar and the yen edged up on Thursday as short-term investors and Japanese exporters sold into a rally in the euro and higher-yielding currencies which followed a repeated pledge by the US Fed to keep rates low for a while.

One-month offshore non-deliverable forward contracts were quoting at 47.10/20, largely unchanged from the onshore spot rate.

DBS expects most Asian currencies to appreciate from current levels and sees the Indian rupee rising to 43.5 by the end of December 2010.

Asia economies and stock markets should benefit from a stronger currency. The benefits are twofold: a strong currency should attract steady inflow of investments, as investors feel comfortable in markets where currencies are stable, economists at the bank wrote in a note.