Markets started the week on a strong note with both the Sensex and the Nifty clocking gains of over 1% by close.
Earlier in the day, the Sensex touched a low of 16,046 amidst volatility as weakness persisted in interest rate sensitive stocks.
However, a recovery in the European markets and buying in oil and gas stocks helped the index to recover over 320 points and touch a high of 16,370.
The BSE benchmark finally ended at 16,342 -- up 200 points, while the Nifty ended up 53 points at 4,899.
In Europe, the CAC 40 index gained 1.4% at 3,060 and the FTSE was up 1.3% at 5,105.
European markets had dropped in intra-day trade as investors worried about the sluggish US economic outlook and Europe's festering debt crisis.
Going ahead, the investors would be looking towards Ben Bernanke's speech on monetary easing and a third round of quantitative easing on Friday.
If there is another round of quantitative easing, it may lead to a recovery in global markets, analysts reckon.
"It is difficult to take a call on the foreign institutional investor flows during the second half given the present global situation.
"Whether the third round of quantitative easing comes in or not and the form it takes will to an extent dictate fund flow in EM equities and commodity markets," said Amar Ambani, Head Research (India Private Clients), IIFL.
BSE oil & gas index recovered 3.5% from its lows of the day and ended at 8,357.
ONGC gained 4% at Rs 287.
Reliance was up 3.4% at Rs 756. Among other gainers were the oil marketing companies --
Aviation stocks went up on falling crude oil prices. Kingfisher Airlines added 5%, Jet Airways went up 1.2% while Spice Jet soared 10% in trades.
BSE power, FMCG and capital goods indices also moved up in trades.
Meanwhile, interest rate sensitives slipped. IT index continued to lag and was down 0.5% at 4,710. Infosys and TCS were the biggest loser among IT stocks - down over 1% each.
BSE bankex was down marginally in trades.
Among other stocks, Mahindra Satyam rose 1.6% at Rs 68 after declaring that they do not see the US credit downgrade effecting the business.
Shares of sugar manufacturing companies such as Shree Renuka Sugars, Bajaj Hind, Bajaj Hindustan and Balrampur Chini Mills gained 5-12% each on reports the government has notified export an additional five lakh tonnes of sugar.
Reports suggest that the empowered group of ministers, headed by Finance Minister Pranab Mukherjee, had on August 12, 2011, decided to allow exports of an additional five lakh tonnes of sugar in view of production higher than domestic demand.
Analysts expect markets to remain volatile this week as the traders roll over their positions on Thursday.
BSE market breadth was positive. Out of 2,922 stocks traded, 1,803 advanced while 1,018 declined.
