India's shares opened higher and bond yields eased Wednesday but its currency remained under pressure after the central bank announced moves to inject 80 billion rupees into the banking system.
Banking stocks jumped on the new measures, pushing Indian shares 1.22 percent higher to 18,468.55 points, after falling nearly six percent in the past three days.
The rupee, the worst performing Asian currency this year, was slightly steadier, trading at 63.36 against the dollar on Wednesday morning, marginally lower than the previous day's record closing low of 63.25.
The Reserve Bank of India (RBI) said late Tuesday it would inject 80 billion rupees ($1.26 billion) into the banking system by buying back long-term government bonds, a move expected to make more credit available.
The move appears to be a partial reversal of a string of measures the central bank has taken since mid-July to tighten liquidity in an attempt to stop the rupee plummeting against the dollar.
Those moves have failed to stop the currency's slide, and instead have pushed up yields on 10-year benchmark bonds to a five-year high, as investors demanded higher returns, as well as raise borrowing costs as banks hike interest rates.
Yields on the 10-year benchmark bonds eased to 8.27 percent on Wednesday, from 9.23 percent intraday on Tuesday.
The partially-convertible rupee hit a lifetime low of 64.13 on Tuesday on fears that the central bank's previous measures to tighten liquidity may prove ineffective to stabilise the rupee.
Announcing the new measures late Tuesday, the RBI said it was "important to address the risks to macroeconomic stability from external sector imbalances".
The RBI also relaxed rules on mandatory bond holdings for banks, which would help protect them from large losses from the hardening of long-term yields.
"Its a phase of consolidation and a bit of stability at the markets," said Param Sarma, chief executive with NSP Forex.
But Sarma said that the overall mood was still "bearish" as the markets await Wednesday's publication of the minutes of July's US Federal Open Market Committee meeting.
These were expected to give indications about a possible rollback of the Federal Reserve's massive stimulus programme.
Most emerging market currencies have been hit by expectations the US will scale back its stimulus sooner than expected, causing funds to flow back to the United States as its economy recovers.