The key benchmark indices recovered in the late trade, propelled by buying in selective frontline stocks. The Sensex regained 16K after slipping nearly 350 points at its days low.
The Sensex was trading at 16,085, up 173 points, after slipping to 15,564 at its days low.
While some buying interest was seen in metal, realty and auto stocks, IT and FMCG counters continued to remain under pressure.
Among the Sensex stocks, Rel Infra and RCom were up over 5 per cent and were among the biggest gainers.
M&M, Hindalco, Bharti were up 3-4 per cent.
ITC, SBI and ACC were under pressure, losing nearly 1 per cent each.
World stock markets dropped on Thursday as the U.S. Federal Reserve failed to reassure investors that a lasting recovery in the global economy was taking hold.
The U.S. central bank decided Wednesday to keep a key interest rate at a record low and said cheap credit would continue for an "extended period" as the world's largest economy struggles to regain its footing after its worst downturn in decades.
For many investors, the news raised doubts about whether the turnaround under way in many economies was strong enough to extend a powerful eight-month rally in global markets. A key U.S. unemployment report due Friday, which could yield clues about the ailing U.S. consumer and demand for Asian exports, also kept traders on edge.
"Around these levels, it's hard to have conviction positions," said Jan Lambregts, head of research of Rabobank in Hong Kong. "There's a big question on investor confidence given issues about the sustainability of the global recovery once stimulus policies fade."
As trading got under way in Europe, benchmarks in Britain and Germany dropped 0.9 per cent, while France's market fell 0.7 per cent.
Earlier, Japanese shares helped lead Asian stocks lower, with the Nikkei 225 stock average falling 126.87 points, or 1.3 percent, to 9,717.44, as the strengthening yen undermined the competitiveness of the country's exports.