The markets had a firm closing after recovering from the day's low in noon trades.
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.
Technology stocks were on the buzzer today
The BSE IT index rallied 4% to 4,896.
IT stocks Infosys and TCS were the major contributor's to Sensex's upmove - responsible for a 90 points movements. TCS ended up 6.6% while Infosys went up 3.6% in trades. Wipro ended flat at Rs 333.
BSE realty index edged up on bargain hunting after the recent slide. Banking stocks were also in green.
BHEL gained 2.6% in trades, followed by Bharti Airtel, Larsen & Toubro and Hindustan Unilever.
However, auto index fell on worries that higher interest rates may hit auto sales.
The index after touching a low of 8,185 recovered to end unchanged at 1,870.
ONGC, Cipla and NTPC were among the biggest index losers. The auto stocks on the declining side included Tata Motors, Maruti Suzuki, Mahindra & Mahindra and Hero Motocorp.
Bajaj Auto bucked trends and gained 4.3% to Rs 1,545 extending Monday's 4% rally, on reports that the company is looking to spend around Rs 675 crore ($150 million) to set up an assembly facility.
In other news, Reliance Industries regained its position as the country's most-valued firm company, while state-run Coal India slipped to third slot within a week of toppling the Mukesh Ambani-led corporate giant from the top.
RIL gained 1.2% in trades.
Meanwhile, Coal India lost 1% at Rs 392 after labour unions reportedly demanded a 100% jump in employee salaries.
BSE market breadth was positive. Out of 2,918 stocks traded, 1,818 stocks advanced while 994 stocks declined.
