The NSE Nifty too regained the psychological 7,800-mark. After opening weak, the 30-share Sensex slipped further on profit-booking and prevailing confusion over the GST Bill. But it bounced back strongly and closed higher by 216.68 points, or 0.85 percent, at 25,735.90.

On Friday, the Sensex dropped for the first time in five days as the government lowered its growth forecast for 2015-16 to 7-7.5 percent from the earlier 8.1-8.5 percent. The broader Nifty closed at 7,834.45, up 72.50 points, or 0.93 percent. Intra-day, it touched a low of 7,733.45.

"As the event risk associated with a Fed rate hike passed over last week, investor participation seemed more sure-footed in the market," said Shreyash Devalkar, Fund Manager – Equities, BNP Paribas Mutual Fund.

A firm trend in Asia and a higher opening of European markets buoyed shares, helping Sensex cover up its initial losses. Sentiment was propped up by hopes that Parliament would manage to pass other key legislations, including the bankruptcy Bill.

The rupee was in a sweet spot for the fifth day in a row against the American currency at 66.35, which buoyed mood further. The recovery in Sensex was supported by gains in ICICI Bank, up 3.24 percent, while ONGC surged 3.16 percent and ITC 2.68 percent. M&M, Hero MotoCorp, Axis Bank and SBI advanced.

Sun Pharma was the biggest loser, tumbling 4.55 percent, as the company has received a warning letter from USFDA on manufacturing practices at its facility at Halol in Gujarat.

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