The Sensex, which had tumbled over 1,400 points in past four trading sessions, fell to 17,759.59 at the outset but bounced back by 407.03 points, or 2.27 per cent, to end at 18,312.94. Investors were richer by Rs 1.17 lakh crore today.
Stock markets ignored the continued fall in the rupee which hit yet another all-time low of 65.5 against the dollar.
Brokers said the current rally was backed by metal stocks after a manufacturing index in China, the biggest consumer of metals, increased in August from an eleven-month low.
They said higher opening in European stock markets as manufacturing in Germany expanded at a faster-than-expected pace, further influenced the Indian market sentiment.
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"This relief rally should not be taken as buying indicator and caution be maintained for long positions," said Nidhi Saraswat, Senior Research Analyst, Bonanza Portfolio.
The three most influential Sensex stocks, with nearly 20 per cent weight, shone bright in today's trade. RIL shot up by 2.81 per cent to Rs 805.85, Infosys by 2.37 per cent to Rs 3,023.30 and ITC by 2.58 per cent to Rs 307.95.