Stocks recouped some of its losses as investors scoured for value picks in beaten down sectors. Midcaps and smallcaps, however, were still under severe pressure. Sectorwise, realty and metal stocks were badly hit.
"Fresh panic will be seen below 3761. Its immediate resistance is in the 4085 region, above which, 4100-4105 will be the major hurdles. Given the tumultuous global scenario, markets will trade on a grim note. This could lead to fresh margin calls and more unwinding of bull positions so test of lower levels seem to be more likely. Volatility may remain high so make the best of it," said Religare Securities.
The meltdown in global stock markets due to a series of events like the bankruptcy of Lehman Brothers, sellout of Merrill Lynch and insurer AIG's lookout for cover mainly kept the market mood grim.
Depreciating rupee, which dipped to two-year low of 46.53 against the US dollar, was another dampening factor.
At 10:45 am, Bombay Stock Exchange's Sensex was down 318 points or 2.35 per cent at 13,213.24, recovering from a low of 13,051.73 in the first few minutes of trade.
National Stock Exchange's Nifty was down 2.26 per cent or 92 points to 4,072.90. The index rose to a high of 4072.55 from a low of 3919.35 so far.
BSE Midcap and Smallcap indices were down 2.38 per cent and 2.15 per cent respectively.
Tata Motors (1.24%) and State Bank of India (0.19%) were the only gainers in the 30-share index.
Losses in Ranbaxy Laboratories (-5.44%), Satyam Computer (-4.52%), DLF (-4.21%), Jaiprakash Associates (-4.11%), Bharti Airtel (-3.82%) and ICICI Bank (-3.59%) kept the market recovery in check.
Market breadth was extremely weak with 1526 declines against 361 advances on BSE, while on NSE, there were 120 losers and 1024 gainers.
Meanwhile, Japanese, Hong Kong and South Korean stock markets fell more than 5 per cent in morning trade.