The markets failed to hold on to significant early gains, but still managed to end the day on a positive note with the benchmark Sensex closing higher by nearly 124 points.
The 30-share index on the Bombay Stock Exchange closed the day at 15,750.40, up 123.78 points from its previous close.
The broader 50-share S&P CNX Nifty of the National Stock Exchange also gained 14.65 points to close at 4,754.20 from its last close of 4,739.55.
In early trade, the BSE barometer went past the critical 16k level to 16,236.70 points on strong global cues.
Market players said the initial rally was also supported by reports that the government initiated further steps to tackle rising inflation and is likely to ask steel producers to lower prices by about 10 to 20 per cent within a month.
Global markets led by American stocks bounced back with a vengeance, shrugging off the on-going turmoil in the US housing market, a credit crunch and continued worries about a recession in the world's largest economy.
However, a heavy selling onslaught by Foreign Institutional Investors (FII) in the latter part of day chopped off the gains, marketmen said.
Tracking Wall Street rally, Asian indices gained 2.0-4.0 per cent while European markets traded better in early trade.
Heavyweights such as Infosys Tech shot up by 4.26 per cent, Jaiprakash Associates 3.08 per cent, HDFC 4.68 per cent, ICICI Bank 3.65 percent and Bharti Airtel 2.41 per cent.
REL and Tata Steel fell by 4.51 per cent and 3.21 per cent respectively. The market breadth was positive with 1,765 gainers against 908 losers.