Mumbai: After overnight free fall that cost the market 565 points, a series of positive developments including massive salvage operation by Indian financial institutions, led to a strong recovery of over 372 points, with a sizeable part credited to speculation of Manmohan Singh being named for the post of Prime Minister.

Even as the Bharatiya Janata Party (BJP) mounted anti-Sonia campaign, the Bombay Stock Exchange (BSE) benchmark 30-share index opened firm at 4,547.70 and later rallied sharply to the intra-day high at 4,949.27 before ending at 4,877.02, a net rise of 371.86 points, the second largest gain in the history of the BSE, or 8.25 per cent.

The initial price rally was prompted by sustained and all-round purchases by domestic mutual funds led by Life Insurance Corporation (LIC), which were net buyers to the tune of over Rs 1,000 crore during last week.

After making net sales of Rs 2,650 crore in the same period, Foreign Institutional Investors (FIIs) reportedly changed their stand and made fairly good investments in blue-chip stocks at the prevailing lower levels.

Securities and Exchange Board of India's (SEBI) statement after a meeting with the BSE and NSE official that the risk management systems at the exchanges are robust to withstand extreme volatility in the market and there will not be any problem in settlement of trades, also had a positive impact on the market.

The rally was enlivened by the Reserve Bank of India's (RBI) decision to reduce the margins by 10 per cent to 40 per cent for bank financing against shares. Furthermore, the minimum cash margin of 25 per cent (within the margin of 50 per cent) reduced to 20 per cent.