The rupee rose by 21 paise to close at 76.25 against the US dollar on Monday, tracking positive domestic equities and weakening of the American currency in the overseas market.

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Forex traders said the uptick in the currency counter was largely due to expectations of more stimulus measures from central banks to support their respective economies reeling under the COVID-19 pandemic.

At the interbank foreign exchange, the rupee opened higher at 76.14 and touched an intra-day high of 76.05 in morning trade.

The domestic unit, however, pared some initial gains and finally settled at 76.25, registering a rise of 21 paise over its previous close. On Friday, the local unit had settled at 76.46 against the US dollar.

Equity benchmark Sensex settled 416 points or 1.33 per cent higher, led by gains in financial stocks as RBI's Rs 50,000-crore stimulus to mutual funds and positive cues from global markets buoyed investor sentiment. The NSE Nifty rose by 127.90 points, or 1.40 per cent.

The US dollar weakened against major currencies in global trade with more countries announcing gradual lifting of lockdowns that have been imposed to contain coronavirus infection.

The number of cases around the world linked to COVID-19 has crossed over 29.91 lakh. In India, over 27,800 cases have been reported so far.

The dollar index, which gauges the greenback's strength against a basket of six currencies was trading 0.42 per cent down at 99.96.

Meanwhile, the Reserve Bank of India provided a Rs 50,000-crore shot in the arm to stressed mutual funds by unveiling a special liquidity facility for the sector, days after Franklin Templeton Mutual Fund decided to wind up six debt schemes.

Meetings of major central banks this week raised hopes of more stimulus to counter the fallout from the coronovirus pandemic, traders said.

"Later this week, the Federal Reserve and the European Central Bank meet is due hence the rupee will be in momentum the entire week," said Jateen Trivedi, Senior Research Analyst (Commodity & Currency) at LKP Securities.

The Bank of Japan on Monday announced expanding its stimulus measures to support the economy hit by coronavirus outbreak.

Forex traders, however, said Reserve Bank of India Governor Shaktikanta Das' comment on fiscal deficit weighed on the rupee sentiment.

"Rupee opened higher against the US dollar but was weighed down after comments from the RBI governor. He mentioned in an interview that the government will probably miss its fiscal deficit target of 3.5 per cent of GDP in financial year 2021 owing to the COVID-19 pandemic," said Gaurang Somaiyaa, Forex & Bullion Analyst, Motilal Oswal Financial Services.

Somaiyaa further said, "This week, on the domestic front, market participants will be keeping an eye on the fiscal deficit number and that could provide cues to the currency that has been trading in a narrow range".

According to Devarsh Vakil, Head Advisory, HDFC Securities, RBI governor's comments "dampened the sentiment for rupee bulls".

Vakil further noted that "the fall in rupee might be temporary as we will see dollar inflows of USD 5.7 billion from Facebook to buy a stake in Reliance Industries telecom unit".

Meanwhile, foreign institutional investors remained net sellers in the capital market, as they sold equity shares worth Rs 207.29 crore on Friday, according to provisional exchange data.

Brent crude futures fell 4.62 per cent to USD 20.45 per barrel due to oversupply concerns.

The Financial Benchmark India Private Ltd (FBIL) set the reference rate for the rupee/dollar at 76.4173 and for rupee/euro at 82.2113. The reference rate for rupee/British pound was fixed at 94.2200 and for rupee/100 Japanese yen at 71.00.