The rupee rose 6 paise to 83.70 against the U.S. dollar in early trade on Thursday, reflecting strong investor sentiment after the U.S. Federal Reserve decided to cut interest rate in line with market expectations.

The rupee also got support from lower crude oil prices, positive domestic equity markets as well as inflow of foreign funds, forex traders said.

A stronger greenback, however, capped the upward movement in the local unit, they added.

At the interbank foreign exchange market, the Indian currency opened at 83.70 and inched up to 83.69 before trading at 83.70 against the greenback, registering a gain of 6 paise from its previous closing level.

On Tuesday, the local unit had gained 10 paise to settle at 83.76 against the U.S. dollar.

The Forex market was closed on Wednesday due to the holiday declared by the Maharashtra government.

Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was up 0.46% to 100.75.

Analysts attributed the recovery of the dollar index to the U.S. Fed's decision to reduce the interest rate by 0.50%. Fed Chair Jerome Powell also indicated that the world's largest economy is on track to achieve the targetted level of inflation at 2%.

Brent crude, the international benchmark, fell 0.03% to $73.63 per barrel in futures trade.

In the domestic equity market, the 30-share BSE Sensex surged 595.85 points, or 0.72%, to a record high of 83,544.08, while the Nifty soared 176.65 points, or 0.70%, to reach an all-time peak of 25,554.20.

Foreign Institutional Investors (FIIs) were net buyers in the capital markets on Wednesday, as they purchased shares worth ₹1,153.69 crore, according to exchange data.

The latest government data released on Wednesday showed net direct tax collection grew 16.12% to over ₹9.95 lakh crore so far this fiscal on higher advance tax mop-up.