Market benchmarks -- Sensex and Nifty -- today retook their crucial 25,000 and 7,600 levels, respectively, tracking a rebound in global markets.
The rupee rebounded from a two-year low against the dollar while gold lost its sheen.
The 30-share Sensex, which plunged to 15-month low in yesterday's trade, staged a strong comeback to reclaim the 25,000-level and settled 424.06 points higher at 25,317.87 on value-based buying in recently beaten down blue-chips and a firming trend in global markets, helped by a late rally in Chinese equities.
The gauge had lost nearly 870.97 points in the last two sessions on China-fuelled worries and deficient rains.
The mood perked up after Prime Minister Narendra Modi met top CEOs, bankers, economists and ministers and discussed ways and means to bolster the economy amid global slowdown, equity brokers said.
However, growing uncertainty over the Federal Reserve's decision to hike interest rates -- for the first time in a decade -- looms.
The 50-share NSE Nifty after crossing the 7,700-mark hit a high of 7,720.90 and settled 129.45 points higher at 7,688.25.
Globally, Shanghai Composite ended 2.92 per cent higher as Hong Kong's Hang Seng gained 3.28 per cent. European markets were in the green in their early trade.
In sync with domestic equities and fresh selling of the American currency by banks and exporters, the Indian rupee rebounded from two-year lows by firming up 27 paise, to close at 66.55.
Financial stocks took the centre-stage during the session as speculation whirred around the possibility of the Reserve Bank going for a dilution of its proposed rules on base rates.
With the improvement in mood, buying interest re-emerged in broader markets with the small-cap and mid-cap indices recovering up to 1.02 per cent.
Gold prices in the national capital plunged Rs 140 to Rs 26,700 per 10 grams today mostly in tune with a weak trend overseas where it held at three-week lows as investors weighed the possibility of a Fed rate hike as the policymakers meet on September 16-17.
Demand from jewellers fell amid a strengthening rupee, which dragged down the yellow metal.
Globally, in London, gold fell 0.3 per cent to USD 1,119.40 an ounce and silver 0.03 per cent to USD 14.57.