After opening higher, the Sensex touched the day's high of 16,138.29 taking cues from firm Asian markets and HSBC Purchasing Managers' Index (PMI) showing a marked rise in Indian service sector activity.
However, the markets started losing gains after the rupee, which touched a one-week high yesterday, started moving down to towards 56-level.
Eurozone PMI Composite Output Index signalling the steepest rate of decline in manufacturing and services output in Eurozone since June 2009 also dampened the sentiments.
"Markets opened in green taking cues from firm Asian markets, edged higher later in the day on good PMI of India. But was unable to sustain the higher levels and trimmed gain due to weak rupee and weak PMI data of Eurozone countries," said Sharmila Joshi, Head Equity, Fairwealth Securities.
Analysts said investors were kept on their toes ahead of a likely emergency meeting of finance chiefs of the G-7 countries to discuss Eurozone's deepening debt crisis.
The Sensex finally closed at 16,020.64, the first closing above 16,000-level after two days, up 32.24 points.
Out of the 30-Sensex pack, 18 stocks led by L&T (3.08 pc), NTPC (1.98 pc) and SBI (1.66 pc) ended higher while 12 counters including Tata Motors (3.15 pc), Bharti Airtel (2.58 pc) and ITC (1.89 pc) closed lower.
Brokers said investors were attracted to stocks in capital goods, banking and power while they sold scrips in realty, FMCG and consumer durable sectors.
On similar lines, the broad-based National Stock Exchange index Nifty rose by 15.15 points, or 0.31 per centto 4,863.30, after touched the day's high of 4,898.95.
Meanwhile, the rupee today hit an intra-low of 55.9 against the dollar and was trading at 55.8-levels on back of a sharp fall in euro and dollar demand from importers. (MORE)
