The recovery was led by pharma majors led by Dr Reddy's Labs.
Traders said falling crude prices in the global market was a big boost for the economy as it lightens the country's import bill burden, eases inflation and current account deficit concerns.
The broader NSE Nifty, after shuttling between 10,651.60 and 10.532.70 points on alternate bouts of buying and selling, closed 6.20 points, or 0.06 per cent, down at 10,576.30.
The broader NSE Nifty slipped below the 10,500-mark by falling 103 points, or 0.97 per cent, at 10,482.20. It touched a high of 10,645.50 and a low of 10,464.05 during the day.
Most of the session's gains for both the indices were wiped out as investors rushed to book profits ahead of F&O expiry on Thursday and also due to concerns over stretched valuations.
Sesnsex ended the day flat on heavy selling pressure.
The NSE Nifty after shuttling between 10,441.90 and 10,341.90, ended 6.15 points, or 0.06 per cent down at 10,380.45.
Gains in key IT, capital goods, healthcare and metal stocks, after consistent buying by domestic and foreign investors, helped both the key indices to scale new peaks.
Markets closed in the red on domestic worries.
Custodian banks are selling dollars for their foreign fund clients.
The broad-based NSE Nifty rose 52.80 points, or 0.50 per cent, to end at 10,530.70
Maruti Suzuki was the biggest gainer among Sensex scrips, rising 5.89 per cent, followed by M&M up 5.29 per cent.
Index heavyweights Reliance Industries and ITC were the top losers along with ICICI Bank and SBI
In the broader markets, the BSE Midcap and Smallcap indices were up 0.5% each
Construction major L&T was the biggest gainer among the Sensex components, spurting 2.30 per cent, after the company said its board has approved a Rs 9,000-crore share buyback plan.
With a rise of around 30 per cent in the benchmark index S&P BSE Sensex, 2014 has been the best year for Indian equity markets since 2009, when the benchmark index surged 81 per cent.
The 30-share Sensex ended up 8 points at 27,508 and the 50-share Nifty closed 1 point higher at 8,284.
Investors have kept their eyes on US-China trade talks and are optimistic about a positive outcome.
Investor sentiments remained upbeat tracking global developments as the US, China geared up for trade talks due this week.
Investors booked profits in range-bound trade, led by PSU, oil & gas, energy, infrastructure, telecom, realty, healthcare, bankex, FMCG, capital goods and power counters.
A recovery in rupee, buying by domestic institutional investors, encouraging earnings by select blue-chips and stock specific buying helped the market get back on its feet
IIP for November 2015 and CPI for December 2015 will be announced today.
Oil & gas, banking and pharma sector stocks stole the show
Investors indulged in buying beaten down blue chips at lower and attractive levels.
Participants will watch out for the Brexit poll outcome in the late morning trades tomorrow.
Markets shrugged off RBI's neutral stance on key policy rates.
S&P upgraded India's credit outlook to 'stable' from 'negative' earlier.
Nifty September F&O series ended lower after seven consecutive positive series with Metal Index falling the most
Investors booked profit ahead of the outcome of the two-day US Fed policy meet which begins today.
Sensex ended up 190 points at 25,519 and Nifty climbed 57 points to end at 7,626.
Sun Pharma was by far the biggest gainer in the Sensex pack, surging 8.13 per cent, followed by Dr Reddy's at 4.92 per cent.
The S&P BSE Sensex surged 160 points to close at 25,262.
The market sentiment was also impacted by mixed global cues as setbacks for a healthcare overhaul in the US raised doubts over prospects for a range of reforms backed by President Donald Trump.
The S&P BSE Sensex gained 57 points to end at 26,064 and the Nifty50 climbed 17 points.
Rate-sensitive sectors like banks, realty and auto witnessed heavy selling pressure ahead of the RBI Monetary policy which is scheduled on September 29.
The laggards in the Sensex kitty were Vedanta, Tata Steel, M&M, HCL Tech, Bharti Airtel, Maruti Suzuki, L&T, Asian Paint and HDFC
Broader markets are outperforming the benchmark indices- BSE Midcap and Smallcap indices are up 0.8%-1%.
Markets will be closed on Thursday and Friday on account of Holi and Good Friday, respectively.
China now world's second largest share market, India is 7th
The NSE 50-share Nifty spurted 97.25 points, or 0.92 per cent, to 10,715.50
