It was a splendid comeback for stocks during the final hour of trade today as investors threw caution to the wind and went on a buying spree. Earlier, after opening marginally up, the market fell into the red, lost further ground and struggled for support for nearly a couple of hours.

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A smart recovery that followed was quite short-lived, but then, stocks rebounded once again, gained in strength as the session progressed and eventually ended on a bright note. Asian and European markets traded weak, rendering the mood quite bearish for a better part of the session till the penultimate hour. Some positive news flow from the government contributed significantly to the market's sharp rise this afternoon.

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The Sensex, which was down nearly 350 points at 15,564.89 at one state, ended past the psychological 16,000 mark, at 16,063.90 with a sharp gain of 151.77 points or 0.95%. The Nifty index of the National Stock Exchange closed with a gain of 54.75 points or 1.16% at 4765.55, well off the day's low of 4610.60.

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Reports that the government may bring in changes in its tax laws including that on savings schemes, capital gains of NRIs and tax agreements with various nations aided sentiment. The tax authorities are also reportedly considering changes in rules on the Minimum Alternate Tax based on gross assets, taxation of foreign companies operating in India, charitable firms and house property.

According to reports, the Union Cabinet has decided that state-run firms with a track record of profits in the past three years should be listed on the stock exchanges. Union Home Minister P Chidambaram said profitable listed state-firms should have 10% of shares listed on the stock exchanges.

In another major decision taken today, the government decided that proceeds from the divestment of equity in state-run firms can be directly used for capital expenditure on social sector programmes, rather than routing it through the National Investment Fund.

Metal and realty stocks, among the prominent losers earlier in the day, rebounded smartly to sign off on a high note. Power, auto, oil, capital goods and pharma stocks too closed with sharp gains. Telecom stocks opened higher and stayed firm right till the end.

Select healthcare, bank and consumer durables stocks edged higher. Information technology heavyweights and FMCG stocks were seen struggling for a major part of the session.

The mood turned so positive during the final hour that only a few stocks among the Sensex components ended weak today. State Bank of India ended lower by 1.1%. ITC, ACC, Infosys Technologies and Tata Consultancy Services lost 0.3% - 1%, while Larsen & Toubro and NTPC ended with marginal losses.

Telecom stocks Reliance Communications and Bharti Airtel gained 5.3% and 4.5% respectively. Reliance Infrastructure moved up by 5.6%. Hindalco gained over 5%.

Mahindra & Mahindra, Tata Steel, BHEL, Hero Honda, Jaiprakash Associates, Sterlite Industries, ICICI Bank, DLF, ONGC, Maruti Suzuki, Tata Power, Tata Motors and Reliance Industries also closed on a firm note.

Suzlon Energy, a big loser in recent sessions, ended with a hefty gain of 13.7% today. Reliance Capital shot up by over 10%. GAIL India gained 6.5%. Idea Cellular, HCL Technologies and ABB ended stronger by 5% - 5.5%. Reliance Power gained 4.5%. Unitech, Cairn India, SAIL, Jindal Steel, Power Grid Corporation, IDFC, Punjab National Bank and Siemens also ended with sharp gains.

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It was a bright day for several midcap and smallcap stocks. Mirroring investor interest in these segments, the Midcap and Smallcap barometers ended stronger by 2.02% and 1.82% respectively.

The market breadth was fairly strong at close. Out of 2745 stocks traded on BSE, 1827 stocks posted gains. 841 stocks declined and 77 stocks ended flat.