The rupee appreciated 8 paise to 81.25 against the US dollar in early trade on Monday supported by a weak dollar in the overseas market.
Forex traders said weak domestic equities weighed on the local unit and restricted the appreciation bias.
At the interbank foreign exchange, the domestic unit opened at 81.26 against the dollar, then gained further ground to touch 81.25, registering a rise of 8 paise over its previous close.
On Friday, the rupee had settled down by 7 paise at 81.33 against the dollar.
Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.37 per cent to 104.15.
Brent crude futures, the global oil benchmark, advanced 1.05 per cent to USD 86.47 per barrel.
In the domestic equity market, the 30-share BSE Sensex was trading 139.99 points or 0.22 per cent lower at 62,728.51. The broader NSE Nifty fell 22.60 points or 0.12 per cent to 18,673.50.
Foreign Institutional Investors (FIIs) were net buyers in the capital markets on Friday as they purchased shares worth Rs 214.76 crore, according to exchange data.
Forex traders said the Reserve Bank of India's monetary policy decision on Wednesday will be keenly watched by investors for further cues.
The Reserve Bank may opt for a lower rate increase of 25-35 basis points in lending rates amid retail inflation showing signs of moderation and the need to push growth, according to experts.
The RBI will come out with its next bi-monthly policy review on December 7 at the end of a three-day meeting of the Monetary Policy Committee (MPC) beginning Monday.