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Mumbai - India's rupee recovered sharply Thursday, erasing most of its losses from the day before when it posted a record low, following the central bank's new moves to support the currency.
The currency ended Thursday at 66.55/$, gaining 3.27% from a record closing low of 68.80 on Wednesday.
Indian shares jumped 2.25% to 18 404.04 points.
The Reserve Bank of India (RBI) late Wednesday said it would start providing dollars directly to three major oil importing companies through a separate bank, in a bid to curb the rupee's volatility.
The new measure means state-run Indian Oil, Hindustan Petroleum and Bharat Petroleum can buy from the RBI instead of the open market where they are responsible for most of the dollar demand. India currently imports about 80% of its oil needs.
The move means, however, that the RBI will have to dip into its foreign currency reserves, which it recently said were high enough to cover seven months of imports.
The rupee had plunged 3.86% on Wednesday, its biggest one-day fall in nearly two decades, on worries about a possible US-led military strike against Syria and surging crude oil prices which fanned fears of a financial crisis.
On Thursday, oil prices fell and emerging markets gained as concerns over immediate strikes on Syria eased.
Prime Minister Manmohan Singh told parliament the country is faced "with a difficult situation" over the economy.
"There are several causes. I do not deny some domestic factors too are responsible," he told parliament and opposition leaders who questioned him on the rupee's sharp decline.
Singh is expected to make a statement on the economy on Friday, when economic growth figures are expected to be released.
Against the backdrop of unrelenting negative news for India's economy, speculation rose that New Delhi might need to seek outside help.
The leading national business daily The Business Standard said confidence in the government had drained away and New Delhi must consider approaching the International Monetary Fund.
"The government must recognise the possibility of such a lack of confidence that investors, domestic and foreign, just want to take their money and run - and invest it anywhere but here," it said.
It added: "It is, thus, once again clear that the only real option is to approach the International Monetary Fund (IMF)".
India last called on the IMF for funds in 1991 during a balance of payments crisis that was considered a national embarrassment.
Industrialist and former chief of the Tata group conglomerate, Ratan Tata, has said the country has "lost the confidence" of the world.
"We are not any longer looking at ourselves as one India," he said in an interview with CNN-IBN this week.
Adding to the grim mood, global rating agency Moody's warned that India's $19bn new food programme for the poor was "credit-negative as it will weaken government finances and deteriorate (the) macroeconomic situation".
The RBI has taken a number of measures to try and halt the fall of the rupee, Asia's worst-performing currency this year. It has lost around a fifth of its value against the dollar since the start of 2013.
Rupa Rege Nitsure, an economist with state-run Bank of Baroda, said the RBI must raise fuel prices that are currently heavily subsidised, as state-run oil firms are hit by rising crude prices.
Analysts fear a sharp rise in global crude oil costs will worsen import-dependent India's already record current account deficit - the broadest measure of trade.
A depreciating rupee makes imports of everything from oil to coal and chemicals costlier, and comes as foreign capital inflows into India have dried up and growth is at a decade-low of 5.0%.
India is one of many emerging market currencies that have also been hit by foreign fund outflows on expectations that the US Federal Reserve will wind down its stimulus scheme as the US economy recovers.
