Some value-buying in index majors ahead of September derivatives expiry also triggered the rebound.
Rate-sensitive shares of banking and realty sectors rose on renewed hopes of a rate cut by Reserve Bank at its upcoming policy review next week.
The 30-share Sensex after resuming lower at 25,526.53 dropped further to 25,386.48 on the back of lower Asian cues in view of disappointing Chinese manufacturing data.
The index, however, rebounded and recovered to 25,934.02 before finishing at 25,822.99 -- a jump of 171.15 points or 0.67 percent on firm European markets.
Sensex had dropped 567.07 points in previous two sessions.
The 50-share NSE Nifty bounced back to hit a high of 7,882.90 on value-based buying in blue-chips and finally settled 33.95 points or 0.43 percent higher at 7,845.95. The big gainers were Lupin, Vedanta, HDFC Bank and M&M.
In the sectoral space, consumer durables gained the most by surging 1.70 percent, followed by banking, realty and oil & gas.
Today's turnaround was still subdued as Asian markets stared at their biggest single-day fall in a month after a private survey showed China's factory output shrank for the seventh straight month to its weakest level in 6 years and 6 months.


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