Banking shares recovered from earlier losses, while bond yields fell slightly, on speculation the Reserve Bank of India could announce a cut in the cash reserve ratio on or before its April 17 policy meeting.
An action to cut the amount of reserves that lenders must hold with the central bank could help alleviate persistently tight interbank liquidity, though some traders expressed doubts about whether the RBI would do so.
The Nifty's bank sub-index rose 0.8% after earlier falling as much as 1.3%.
The 10-year benchmark bond yield was at 8.57% from Tuesday's close of 8.59%. It has moved in the 8.56 to 8.61% range so far in the day.
The RBI has already cut the CRR this year by 125 basis points, but it has been widely seen as not enough to ease the liquidity squeeze in the banking system.
Traders said short-covering also helped India's 10-year bond prices to gain.
