Among major gainers, ITC, Reliance Industries, Dr Reddy's and HDFC rose up to 3 per cent.
Unwinding of long dollar positions by banks too aided the sentiment
The rupee had plunged by 48 paise, logging its biggest fall in more than five weeks, to close at over one-month low of 61.13 against the greenback on Monday following demand for the US currency from importers.
Fresh demand for the American unit from importers put pressure on the rupee.
Crucially, the US central bank softened the blow by making its forward guidance even more dovish.
Given Indian corporates's high indebtedness, new credit will be used for servicing loans rather than building factories. This is setting us up for more companies on life support and more zombie banks, warns Rahul Jacob.
The 30-share BSE Sensex shed 0.9% or 186 points at 20,536 while the 50-unit NSE Nifty was off 1% or 61 points at 6,091.
Macro-economic data from China and minutes of the US Federal Reserve's last meeting caused the turmoil as stocks tumbled around the globe.
On speculative front as well, non-commercials have decreased bullish bets on COMEX silver futures and options to a three-month low.
In the latest large opinion poll, the opposition Bharatiya Janata Party and its allies were forecast to win a narrow majority in the 543-seat lower house of parliament, compared with previous surveys predicting that they would fall short.
The markets will also keenly eye the HSBC manufacturing and services data.
With a global selloff over concerns of the US Federal Reserve's bond-buying tapering impacting the currencies of several emerging markets, the rupee has been the worst performer since Thursday.
The 30-share Sensex closed 80 points lower at 21,753 levels while the 50-unit NSE Nifty index was down 38 points at 6486 levels. Benchmarks plunged to their lowest levels since March 06, 2014.
US Federal Reserve Chairper Janet Yellen hinted at raising interest rates sooner than expected, in her first press conference after assuming the top job at US central bank.
The market breadth, indicating the overall health of the market, was positive
Foreign brokerage Bank of America Merrill Lynch said they expect the headline inflation to rise to 3.3 per cent in May, but added that it is within the 2-6 per cent range which the government has set for the RBI.
The robust export performance, coupled with a compression of imports led by gold, has led to a substantial narrowing in the current account deficit to comfortable levels.
Fed move based on US economic recovery, which should boost India's exports, narrow CAD and help curb 'imported' inflation
The Financial Stability and Development Council members include heads of regulatory bodies like RBI, Sebi and Insurance Regulatory Development Authority.
Second quarter earnings of companies, starting with the Infosys results, export-import numbers and industrial production data, could keep markets volatile in the week ahead.
The 30-share Sensex ended 56 points lower at at 20660 levels and the 50-share Nifty scrapped 14 points at 6155 levels.
Market participants said expectations of a rise in interest rates by the RBI and US Fed's comments on its stimulus programme are likely to keep the market nervous in the week ahead.
The broader NSE Nifty reclaimed the key 10,100-mark and touched a high of 10,155.65, before finally settling at 10,124.35
What is killing the risk appetite of the bond buyers is the inconsistency in the central bank's approach. It needs to allow the yield to find its own level, gradually. To ensure that, the RBI may adopt a similar approach with which it handles a slipping rupee, asserts Tamal Bandyopadhyay.
Mark Mobius, executive chairman of Templeton Emerging Markets Group still believes in the emerging markets growth story.
While Goldman Sachs says India will see a transition, HSBC feels structural imbalances will lead to cloudy outlook for markets.
Indian economic growth hit a low of five per cent in the financial year ended March 31,2013 and further slowed in the first quarter of FY14.
December is packed with key economic and political events, both at the domestic and the global level, which will decide how foreign institutional investors (FIIs) fine tune their investment strategies
Brazil and other developing nations are growing anxious about the expected withdrawal of stimulus in the United States
China would contribute $41bn towards the pool. Brazil, India and Russia would contribute $18bn each; South Africa $5bn.
The 30-share Sensex ended flat at 21,833 and 50-share Nifty gained 7 points at 6,524.
Barack Obama is likely to pick a candidate to succeed Ben Bernanke sometime during the summer.
In the new decade, the scene will change because the banks till recently had been challenged by the fintechs, but the techfins have now entered the arena, observes Tamal Bandyopadhyay.
ICICI Bank and SBI were among the top Sensex gainers along with FMCG majors ITC and HUL.
Delay in the tapering of the $85 billion-a-month bond buyback programme by the US Fed (tapering will start from January 1) gave the country time to replenish the forex reserves and rein in the high current account gap.
'It was because of the huge selloff in the Indian equities that the rupee fell so sharply against the dollar on Friday.'
The broader NSE Nifty shuttled between 10,784.65 and 10,689.80, before ending 21.30 points, or 0.20 per cent, lower at 10,718.05.
The dollar index was down 0.01 per cent at 95.86 against a basket of six currencies in early trade
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