The rupee rallied smartly against the US currency and scaled a new 27-1/2-month closing peak of Rs 46.5350/5450 per dollar on Thursday, driven-up by strong dollar supplies from exporters and foreign fund inflows in the volatile trade at the Interbank foreign exchange market.

Notching up a sharp gain of nearly five paise from Wednesday's close of Rs 46.59/60, the rupee tested highs of Rs 46.5250/5350, despite a weak opening of Rs 46.60/61 per dollar to adjust to the shifting of the spot date to July 1 because of the June 30, half-yearly accounts closure of the Reserve Bank of India.

The rupee had last finished on a better ground when it logged a closing quote of Rs 46.5300/5350 on March 9, 2001.

Notwithstanding the overnight month-end pressures, the rupee made a sharp turnaround and climbed to fresh 27-1/2-month highs, backed by robust trade and capital inflows.

The quarter percentage point cut in the US Federal Funds rate did not have any impact on the forex spot trade, but the still wider interest rate differentials between US and India would further increase dollar inflows, dealers said.

The steeply wide interest rate differentials have induced foreign funds to invest huge sums in the local bonds and bourses, a clear indication by the sustained spurt in equity prices and sharp fall in yields of government bonds.