Mumbai, Aug 23 (PTI) : After the government's pep talk, the rupee today made a stunning comeback, snapping a six-session losing streak to rise by 135 paise and close at 63.20, its second-biggest rise in a decade in absolute terms.

Comments from the government and the Reserve Bank of India, which came after the rupee slid to an all-time intra-day low of 65.56 yesterday, boosted sentiment and also helped local shares rally.

Finance Minister P Chidambaram yesterday said the rupee is undervalued and has overshot appropriate levels while asserting there is no need for excessive and unwarranted pessimism. The Reserve Bank said it has adequate foreign exchange reserves to deal with the declining rupee.

After opening higher at 64.30 in the foreign exchange market, the rupee immediately dropped to a low of 64.75 on initial weakness in equities. It rebounded and shot up at the fag end to settle at 63.20, a rise of 135 paise or 2.09 per cent. Previously, it had flared up by 152 paise, or 3.08 per cent, on May 18, 2009.

"Nationalised banks were selling dollars, probably on behalf of the Reserve Bank. Corporates also sold dollars today as they expect that the government and the RBI are serious towards curbing volatility in forex market," said Agam Gupta, managing director and head of fixed income trading at Standard Chartered Bank.

Barclays cut its forecast of India's FY13-14 current account deficit to about USD 68 billion from about USD 80 billion earlier and said the country may be able to almost fully fund the CAD. It said the rupee may recover to about 61 per US dollar in the next 12 months, largely on the back of a narrowing CAD.

The benchmark S&P BSE Sensex gained 206.50 points, or 1.13 per cent, after yesterday's 2.27 per cent rise. Foreign institutional investors pulled out Rs 1,277.64 crore yesterday, as per provisional data with stock exchanges.

The dollar index was up by 0.10 per cent against its major rivals ahead of the Federal Reserve's annual gathering.

"The trading range for the spot rupee is expected to be within 63.40 to 64.60," said Pramit Brahmbhatt, CEO of Alpari Financial Services (India).

Forward dollar premiums tumbled on consistent receipts by exporters. The benchmark six-month forward dollar premium payable in January dipped to 229-234 paise from Thursday's close of 236-240 paise. Far-forward contracts maturing in July dropped to 434-439 paise from 445-450 paise.

The RBI fixed the reference rate for the dollar at 64.6880 and for the euro at 86.3035. The rupee shot up further to 98.47 against the pound from 100.50 and surged against the Japanese yen to 63.80 per 100 yen from 65.41. It rebounded to 84.40 against the euro from 85.94.