ICICI Bank, India's second-largest lender, rose 9.6 per cent to 350.50 rupees, while smaller rival HDFC Bank firmed 8.6 per cent to 907.20 rupees. Leading lender State Bank of India gained 3 per cent to 1,104.25 rupees.

China slashed its one-year lending and deposit rates by 108 basis points in its fourth cut since mid-September to help its economy weather the global economic slowdown.

Traders said the move strengthened prospects for a rate cut by the Indian central bank.

Finance Minister Palaniappan Chidambaram had said on Monday the focus had shifted to bolster growth as inflation cooled, and a Reuters poll forecast on Wednesday annual inflation would have dropped to a seven-month low of 8.56 per cent in mid-November.

The data is due on Thursday.

Sandeep Neema, a fund manager with JM Financial Mutual Fund, said the market was also underpinned by higher regional markets.

"Last 3-4 days, markets were in a correction mode. Global markets have rallied, and India did not catch up earlier," he said.

Still, the market swung widely after starting up 1.3 per cent and then slipping into negative territory before bouncing back.

The 30-share BSE index ended up 3.81 per cent, or 331.19 points, at 9,026.72 after seesawing between 8,658.53 and 9,061.72.

Twenty-eight of its components rose while in the broader market, 1,391 losers outpaced 1,063 gainers on moderate volume of 254 million shares.

Traders said short covering ahead of the expiry of monthly derivatives on Thursday also helped, but the outlook would depend upon the flow of foreign funds who have been net sellers of $13.7 billion this year.

Most Asian stock markets except Japan rose on Wednesday fuelled by a rally in the financial sector, after an $800 billion Federal Reserve rescue package to bolster US lending, while the aftermath of BHP Billiton's dropped bid for Rio Tinto gave a boost to metals shares.

The Chinese rate cut also helped metal stocks on hopes it would boost demand. Sterlite Industries rose 12.9 per cent to 231 rupees, while Hindalco and Tata Steel firmed 2.3 per cent and 2.7 per cent respectively.

The 50-share NSE index gained 3.7 per cent to 2,752.25.