The rupee on Wednesday appreciated by 3 paise to Rs 46.81 a dollar at the Interbank Foreign Exchange market in early trade on dollar selling by banks.
However, weak opening on the stock market and dollar's strength against other currencies, capped rupee's gain.
Forex dealers said selling of dollars by banks helped rupee to strengthen, but capital outflows by foreign funds and dollar's gains against other currencies restricted rupee's gain.
The rupee had ended 30 paise lower at Rs 46.84/85 against the dollar in the previous session.
Meanwhile, the Bombay Stock Exchange index, Sensex fell by 104.41 points to 18,540.65 points in the opening trade on Wednesday.