Domestic stock markets continued to rally for the third straight session on Friday, recovering from the biggest one-day losses in seven years witnessed earlier this week, amid a massive sell-off in global markets.

The benchmark BSE Sensex index surged over 400 points to trade above the 26,500 mark, while the NSE Nifty index gained 141 points surpassing the psychologically important 8,000 level.

Overall, the Sensex rose over 900 points since Monday's closing level of 25,741, when it fell by 1624.51 points or 5.94%.

Here are the 4 key developments that led to a rebound in stock markets:

China Markets Rebound

Recovering from a crash witnessed at the beginning of the week, Chinese stock markets continue to rebound for the second consecutive session on Friday. Investors' sentiment in China has turned positive after the authorities announced a interest rate cut on Tuesday. The rate cut signalled that they are ready to take further stimulus measures if the economy deteriorates. Chinese equity markets had plunged by 8.5% and over 7% respectively in the first two trading sessions this week.

Positive US Economic Data

Global markets are further supported by a positive economic data in the US on Thursday, which led to a sharp rally in the country's stock markets. A revised estimate showed that the US gross domestic product (GDP) grew 3.7% in the second quarter, far above the market expectations of 3.2%. The strong US GDP data boosted the sentiment and the stock market gained 2% on the day. Overall, the benchmark Dow Jones Industrial Average (DIJA) was up by 6.3% in the two trading sessions, posting its biggest percentage gain since 2008.

Asian Shares Rally

Tracking a rebound in the US markets, most of the Asian stock markets witnessed sharp gains. While Japan's Nikkei was up over 2.5%, Hong Kong's stock market rose 0.4%.

Rupee Recovers

Rupee also continues to recover from fresh two-year low of 66.47 against the dollar, albeit slowly. It traded at 66.10 against the greenback on Friday, partly lending support to the stock markets.