The currency's sharp recovery reversed the trend since the last weekend which saw the rupee crumble 1.4 percent to a record low of 43.70. The bear run began after Finance Minister Yashwant Sinha said on Monday that global developments would put pressure on the rupee.

The forward premium on the dollar also started rising again. The month forward premia touched a high of 19.04 per cent. "The sudden rise in the forward premia is a knee jerk reaction to the RBI measures. A lot of banks which were receiving have now started to pay which is driving the forward rates up," a dealer in a private bank said. The six month forward premia closed at 12.43 per cent (annualised) and the one year closed at 11.5 per cent.

In the inter-bank call moneymarket, the rates shot up to 10 per cent following the RBI's decision to hike repo rates, and gilt prices crashed and trading was dull. After announcing a host of measures to rein the rupee, the Reserve Bank pumped in about $ 100 million in the spot and the forward market to send out a clear signal to the market that it wants the rupee to stabilise.

The RBI hiked the CRR by one percentage point, the repo rate by three percentage points, and has allowed forward cover for FIIs be made available to 15 per cent of the existing equity investments as on June 11 in addition to the facility available for incremental investments. It has also withdrawn the facility of rebooking of cancelled contracts in respect of import transactions along with the facility of splitting the forward commitments into spot and forward legs.

On the stock markets, reflecting the absence of any large scale FII sales and short covering, the BSE sensitive index (Sensex) recovered by 105.01 points to close at 2,989.60 points. The S&P CNXNifty index also registered a major recovery of 30.40 points to close at 868.70 points while the BSE-100 index spurted by 42.88 points to 1336.37 from previous close of 1293.49.

Apart from the RBI package to stem the rupee slide, brokers said the firm trend in European and South-east Asian stocks and currencies also prompted operators to push up share prices. ``The timely intervention of RBI to stabilise the currency provided the much-needed support to the sagging market sentiment,'' said a broker.

After dipping to a low of Rs 105 on Wednesday, Reliance shot up to regain its lost glory to close at Rs 119.20. Another star performer of the day was ITC which breached the crucial barrier of Rs 600 to close at Rs 615.75 on the BSE registering a gain of 5.30 per cent. The GDR of ITC also recovered by 5.45 per cent to trade at $ 15.87.

Software counters continued to be in the limelight and participated in the rally which triggered off with the positive developments at the counter of Reliance and ITC. Mirroringthe speculative nature of business at the local bourses coupled with select buying by institutional players, stocks like Satyam Computers, Zee Telefilms, Pentafour Software and Philips (India) touched the upper end of the price band.

The impact of RBI's package in terms of offering forward cover to the FIIs was felt at the local bourses. A section of market participants reported of select FII purchases in scrips like ITC, MTNL, Bhel, Satyam and Telco.