Snapping a two-day losing streak, the domestic stock markets rebounded sharply on Tuesday tracking the positive Chinese markets while a recovery in rupee also boosted the investors' sentiments.

The benchmark BSE Sensex soared 424 points or 1.7% to close at 25,317 points while the NSE Nifty rose 129 points or 1.7% to end at 7,688 points.

Still, the Sensex is down nearly 3,000 points compared to the high of 28,237 on 7 August.

"While it is too early to call it a sustainable pullback rally, maintain an eye on 7753 on Nifty spot on closing basis to confirm sustenance of the current bounce till 7950-8050 zone," Sushil Financial Services technical analyst - strategies Ranak Merchant told the Business Standard.

"As events such as the Fed meet and our own RBI policy meet ensue, a cautious approach is hereby re-iterated," he added.

Meanwhile, Chinese stocks rebounded sharply by nearly 3% for the first time since 28 August after a disappointing economic data raised speculations that state-owned financial institutions would step up buying shares.

The benchmark Shanghai Composite Index rose 2.92% ending the session at 3,170 points.

"State funds may be focusing the purchase on some large companies including financials and helping with a rebound in the broader market," Castor Pang, head of research at Core-Pacific Yamichi Hong Kong, told Bloomberg.

PM Modi meets India Inc

The domestic market sentiment was also supported by Prime Minister Narendra Modi's meeting with industry chiefs today to explore the ways India can face the ongoing global economic turmoil. Finance Minister Arun Jaitley, RBI Governor Raghuram Rajan and Reliance Industries chairman Mukesh Ambani were attended the meeting.

"The government signalled its intention to further support the domestic economy and highlighted this volatility as an opportunity, which has helped the market. The market will continue to be cautious and is likely to stabilise following the FOMC rate decision next week," Geojit BNP Paribas Financial Services, told The Financial Express.

Among the sectoral indices, bankex, capital goods and power were the biggest gainers, rising by over 3%.

Stock prices of YES Bank, Bank of Baroda and ICICI Bank rose over 3%. Bank of India, Axis Bank, Punjab National Bank, State Bank of India, Canara Bank and Kotak Mahindra Bank ended in the range of 1-5%.

Rupee Rebounds

The rupee rebounded by 18 paise to 66.64 against the US dollar as banks and exporters sold the greenback aggressively on the back of weakness in the American currency abroad. The dollar weakened due to fading expectations over interest rate by the US central bank at its next week's meeting.

"The rupee remains typically weak in April-September, as summer and the monsoon seasons constrain industrial production and exports. It strengthens in October-March, as better weather pushes up activity and exports. That said, we continue to expect that RBI would recoup forex reserves at Rs 60-62/dollar level. This will keep the rupee weak for now," said Bofa-ML in a note, to The Economic Times.

Gold Prices Down

Gold prices fell by Rs 140 to Rs 26,700 per 10 gm, mainly led by a weak economic data in China. Chinese imports fell sharply by 14.3% in August, raising concerns over gold demand in the world's largest consumer of the yellow metal.