Stocks in India recovered sharply on Thursday led by buying in frontline IT, power and metal stocks and drawing from strength in the European markets.

National Stock Exchanges Nifty closed the day 1.99 per cent higher at 4676.95, bouncing off the days low of 4536.25. The high for the day was 4690.60.

Equities had opened on positive note but stumbled on talk of Prime Minister Singh's resignation. The market later recovered as stocks looked undervalued following the battering last couple of days. Frontline Nifty stocks gained on short covering.

In futures and options segment, Nifty June futures settled at 5 points discount to the spot. The contract price gained 2.24 per cent and added 3.8 per cent in open interest. The rising open interest coupled with positive cost of carry indicates build up of longs.

Option calls of strikes 4700 and 4800 on Nifty June added 20 per cent and 44 per cent in open interest while 4900 call shed 20 per cent, which clearly indicates that 4800 will act as a strong resistance near term. On the put side, strikes of 4500 and 4400 added 15 per cent and 82 per cent in open interest, suggesting strong support at these levels.

Short covering was seen across the board, especially in the power sector as stocks appeared to be undervalued to investors. Markets will trade in positive territory for couple of days. The 4800 level on Nifty will act as a strong resistance in near term. However, inflation worries may check the gains, said Siddarth Bhamre, derivatives fund manager at Angel Broking.

 In stocks futures, Reliance Industries June settled at a premium of 12 points and it added 17 lakh shares in open interest. ONGC June price soared 7.32 per cent but the contract settled at a discount of 18 points. It added 9.6 lakh shares in open interest. Reliance Petroleum gained 1 per cent on short covering. Essar Oil surged 5 per cent.

DLF June futures settled at a premium and added 5.7 lakh shares open interest. Unitech futures gained 1.3 per cent and added 5 lakh shares. HDIL jumped 2.87 per cent.

The depreciating rupee supported IT stocks. Tech Mahindra June spurted 8 per cent and HCL-Tech climbed 6.4 per cent on short covering. Wipro surged 8.73 per cent and added 2.21 lakh shares to open interest. Infosys Technologies jumped up 5.57 per cent.

Axis Bank gained 4.5 per cent, ICICI Bank June price increased 2.5 per cent, HDFC Bank jumped 1.52 per cent while SBI climbed 3 per cent on short covering.

Reliance Capital soared 8.22 per cent and open interest added 5.5 lakh shares, NTPC surged 6.83 per cent, Suzlon Energy spurted 8.81 per cent and GAIL climbed 7.5 per cent on short covering, Reliance Infrastructure jumped 6 per cent and open interest added just about 28,000 shares.

Total F&O turnover on NSE was Rs 51,017 crore, up 5 per cent from Wednesday.

Towards close of the Indian markets, UK's FTSE was trading higher by 0.11 per cent, Germany's DAX was up 0.22 per cent and France CAC gained 0.17 per cent. The European indices had opened on the wrong side.