MUMBAI - The Indian rupee rose to its highest in nearly two weeks on Wednesday, aided by gains in its Asian peers but dollar appetite from state-run lenders is likely to cap the upside on the local unit, traders said.

The rupee was at 82.8975 against the U.S. dollar as of 10:40 a.m. IST, higher by 0.08% compared with its close at 82.9625 in the previous session.

State-run banks were bidding for dollars in early trading on Wednesday, likely on behalf of importer clients, a foreign exchange trader at a public sector bank said.

While dollar buying by public sector banks raises speculation of central bank activity, these levels are also very appealing for local oil companies, so it is hard to say definitively, the trader added.

The dollar index was hovering just shy of the 104-mark after declining 0.2% on Tuesday, while Asian currencies gained, with the offshore Chinese yuan up 0.2% to its highest in nearly three weeks.

Meanwhile, dollar-rupee forward premiums slipped with the one-year implied yield down 2 basis points (bps) at 1.74%.

Investors will keep a close eye on the release of the minutes of the U.S. Federal Reserve's latest policy meeting due during U.S. markets hours later in the day.

The minutes may offer cues on policymakers' thinking about the future trajectory of benchmark policy rates in the United States.

Investors are currently pricing in a 36% chance of a rate cut in May, down from 84% a month earlier, according to CME's FedWatch tool.

"Sustaining levels above 82.80" could pave the way for the rupee to log more gains, Amit Pabari, managing director at FX advisory firm CR Forex, said.

(Reporting by Jaspreet Kalra; Editing by Sohini Goswami)