The recovery was also supported by dollar-selling by exporters and banks, foreign fund inflows and the greenback's weakness against some currencies overseas, traders said.
Brent crude, the international benchmark, dropped almost 7 per cent to a one-year low of USD 65 a barrel, before staging a modest recovery.
At the interbank forex market, the rupee commenced with strength at 72.18 and appreciated further to 71.99 against the US dollar.
However, it lost some momentum and finally finished at 72.31, showing a gain of 36 paise.
The rupee had climbed 22 paise to close at 72.67 against the US dollar Tuesday.
"Rupee hit the 72-mark against US dollar for the first time since September in the morning session after sharp fall in oil and gains in stocks stepped up demand expectations for the currency.
"However, reports showing WPI hitting four-month high, along with a pull back in oil and dollar, prompted rupee to give away some gains. Traders will be eyeing RBI's move to conduct OMO to infuse Rs 120 billion to the system tomorrow, with trade deficit figures also due shortly, while US dollar will take cues from Fed Chairman's speech later Wednesday," said Anand James, Chief Market Strategist at Geojit Financial Services.
Foreign institutional investors (FIIs) net bought shares worth Rs 277.38 crore Wednesday, as per provisional data.
Meanwhile, benchmark Sensex ended marginally lower at 35,141.99 as losses in pharma and information technology shares offset gains in energy, banking and metal stocks amid weak global cues.
The broader NSE Nifty, after shuttling between 10,651.60 and 10.532.70 points on alternate bouts of buying and selling, closed 6.20 points, or 0.06 per cent, down at 10,576.30.