The Sensex, which had dropped to a low of 16,213 in early trades, recovered in noon deals on back of buying in technology, consumer durables, capital goods and realty stocks.
The Sensex touched a high of 16,549 - recovering 334 points from the day's low.
However, it pared some gains towards close and ended at 16,498 - up 157 points. And the Nifty ended 50 points higher at 4,949.
According to Ranak Merchant, Technical Analyst - Strategies, Sushil Financial Services, "Both the benchmark indices have crucial support points at 15,960/4,786.
The markets have managed to honour them till now, and if it holds to these levels then a relief rally till the previous double bottoms of 17,246/5,167 can be expected in the next few sessions."
Meanwhile, the European markets opened on a firm note which has helped Indian markets to showcase a recovery.
The CAC and DAX gained 1.7% each, while the FTSE was up 1.2% in trades.
Asian markets also gained, mirroring cues from US which snapped three-day's losing trend. Hang Seng gained 2% at 19,875. Markets in Seoul and Taiwan soared around 3.5% each.
The broader markets also ended higher. BSE mid and small-cap indices gained around 1% each in trades.
Foreign institutional investors have sold shares worth Rs 7,672 crore this month till Aug 18, as per provisional figures.
Analysts expect markets to remain volatile this week as traders roll over their positions ahead of Thursday's derivatives expiry.
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