Indian shares snapped a two-day falling streak to close 0.8 percent higher on Saturday buoyed by overnight gains on Wall Street, but investors remained cautious about European debt and the global recovery.

"The market for the shorter term is oversold and Wall Street's recovery added to the rally," said Neeraj Dewan, a director with Quantum Securities in New Delhi.

"There is some bounce back because of this short covering," he said, but added the rise could be short-lived.

"The market can see selling coming back at slightly higher levels on Monday or Tuesday due to Europe's debt problems and reversal of dollar carry trade," Dewan said.

The benchmark 30-share BSE Index ended up 0.79 percent, or 124.72 points, at 15,915.65 in a special 90-minute trading session held by the stock exchanges to help the National Stock Exchange (NSE) test an upgraded trading system.

The index, which fell 2.7 percent on Friday to its lowest close in three months, dropped 2.7 percent on the week to record its third straight weekly fall.

Index heavyweights Reliance Industries and Infosys Technologies led the gains on Saturday by rising 1.3 percent and 1.6 percent, respectively. These two stocks have a combined weightage of about 23 percent in the main index.

In the broader market, 1,951 gainers beat 619 losers on a total volume of 90.4 million shares.

The 50-share NSE index ended 0.82 percent higher at 4,757.25 points.