Mumbai: Shaking off its weakness, the benchmark BSE Sensex staged a comeback of sorts, jumping over 516 points to retake the 26,000-level -- its biggest single-day gain in two weeks -- after a top Fed policymaker said the case for September rate hike looks "less compelling".
The Nifty too climbed 157 points to recapture the 7,900-mark.
The comments, which led to a sharp rebound on Wall Street overnight, effectively buoyed investor sentiment here as worries of a China-led market slide took a back seat.
On Wednesday, New York Fed President William Dudley said the arguments for a rate lift-off are less compelling than it was a few weeks ago due to the threat posed by the recent spell of global market turbulence over Chinese slowdown fears.
The recovery was supported by gains in blue-chips as consumer durables, realty and healthcare counters shaped up.
Covering up of short positions on expiry of August futures and options contracts at the end of session contributed to the upside.
The rupee, at 66.04, was on a firmer footing against dollar, which too rubbed off on investor appetite.
Tracking the bullish cues, the 30-share Sensex hit the day's high of 26,302.77, before closing at 26,231.19, up 516.53, or 2.01 percent, its biggest single-session gain since August 14.
In yesterday's trade, the barometer had lost 318 points.
Once it cracked above the 7,900-level, the 50-share NSE Nifty jumped to a session's high of 7,963.60, before settling lower 157.10 points, or 2.02 percent, at 7,948.95.
"Markets rallied on the back of short covering on the expiry day of August derivative contracts. Rebound in global markets led by US indices and a strong rupee boosted the Street sentiment," said Gaurav Jain, Director, Hem Securities.
HDFC gave a standout performance, up 8.41 percent, as Vedanta, Tata Steel, Lupin and Cipla too registered gains.
Among BSE sectoral indices, consumer durables bounced back the most followed by realty, healthcare and oil & gas.
The broader markets, supported by retail investors, gained ground too as BSE small-cap and mid-cap indices surged 2.56 percent and 2.49 percent, respectively.
Asian markets ended mostly in the green with Shanghai Composite rising up to 5.34 percent.
Hong Kong's Hang Seng edged up 3.6 percent while Japan's Nikkei climbed 1.08 percent.
European stocks traded sharply higher, tracking strong Asian counterparts on some signs of stability.
Foreign portfolio investors (FPIs) continue to dump Indian stocks, net selling shares worth Rs 2,345.77 crore yesterday, provisional exchange data showed.
As many as 21 stocks advanced out of the 30-share index.
The market breadth turned positive as 2,000 scrips advanced as against 678 declines.
The total turnover declined to Rs 3,015.30 crore, from 3,134.13 Rs crore yesterday.
"India has been resilient among emerging markets and will continue to remain attractive to FIIs on positive domestic factors like possible rate cuts by RBI and policy reforms while further depreciation in the rupee is a risk in the medium term," said Vinod Nair, Head, Fundamental Research, Geojit BNP Paribas Financial Services.
