Mumbai: The rupee climbed to a near-decade high on heavy investment buying ahead of an anticipated rate cut by the US Federal Reserve and a likely burst of capital inflows into India.

The rupee ended at a three-week high at 39.35 / 36 against the dollar against its previous close of 39.40 / 41a dollar.

The rupee hit 39.16 against the dollar last month, it's highest since March 1998.

Traders said the rupee's rise has been limited by possible central bank intervention, which capped the local unit's gains at 39.35.

The Reserve Bank of India bought $52 billion in intervention in the first nine months of the year and is widely seen as having played an active role in the rupee market in October and November, too.

Bank of India was widely suspected of having intervened against the local unit on behalf of the RBI through the session to temper the rupee's rise.

The Fed is expected to lower the key federal rate by 25 basis points to 4.25 per cent. It has lowered rates twice since mid-September. The decision is expected at 1915 GMT.

The rupee was also bolstered by the benchmark share index that surged to a new life high above the 20K mark buoyed again by investors' expectations of a US rate cut and firm global markets.

The dollar hit a one-month high against the yen and firmed against other currencies in choppy trading ahead of the Fed decision. 

The Sensex, which hit a new high at 20,333.06 in late afternoon trade, ended the session with a whopping gain of 360.21 points or 1.81 per cent at 20,290.89, the Nifty settled at 6097.25, a few points down from a new all-time high of 6111.20, with a gain of 2.29 per cent or 136.65 points.

A generally weak dollar overseas and expectation of increased capital inflows aided the rupee sentiment.

Foreign institutional investors (FIIs) have pumped in $506.50 million in Indian equity markets and are expected to invest more after a possible Fed rate cut at today's policy-setting meeting, forex dealers said. Dollar was weak against major currencies in New York yesterday. However, continued fears of the central bank intervention at rupee's higher levels seems to have capped further gains.