In line with global stocks, Indian shares tanked with the BSE benchmark index opening 60 points lower. It touched the day's low of 17,026.97 soon after as selling pressure intensified, down 197.39 points from its last close.
Reports that India's crucial monsoon is expected to be 15 per cent deficient this season, the first indication of a drought in three years, worried investors.
However, a sharp bounce-back in European stocks boosted sentiments and buying in Wipro, NTPC, Dr Reddy's and ONGC shares helped index recover.
The Sensex concluded at 17,197.93, down 26.43 points, on good support from Reliance, Infosys and HDFC Bank.
European indices were trading higher with Germany's DAX up 1.95 per cent, France's CAC higher by 2.25 per cent and the UK's FTSE up 1.30 per cent in afternoon deals.
"Over the last few days, expectations of stimulus package were built up. But outcomes were not as per hopes...Indian stocks opened gap down and saw selling pressure. However, later recouped almost entire lost ground," said Nagji K Rita, CMD, Inventure Growth & Securities.
Metals stocks were the worst hit today with Sterlite, Tata Steel and Jindal Steel losing 2 per cent each on reports of slowing demand.
Traders said fears of drought hit interest-rate sensitive stocks such as banks as RBI may not cut interest rates. Auto stocks, including M&M and Tata Motors, also ended lower on apprehensions poor rains will hit rural incomes.
The 50-share NSE index Nifty declined 12.05 points, or 0.23 per cent to 5,215.70, after touching a low of 5,164.65.
Meanwhile, the rupee also rebounded from session's low of 56.19 and was last trading at 55.9 levels tracking a recovery in euro.
