Indian shares made their second-biggest daily gain on Tuesday as investors hunted bargains a day after the market's worst crash, encouraged by signs that a reformist leader might be sworn in later this week.
Italian-born Sonia Gandhi stood down as prime minister-elect on Tuesday to end debate over her foreign birth, opening the way for her Congress party to choose an economic reformer as its leader.
Ghandi is now pushing former finance minister Manmohan Singh, the architect of India's reforms, for the post, NDTV said.
The Mumbai benchmark share index extended early gains on relief Gandhi had dropped out of the race to become prime minister.
"This means that Manmohan Singh, who is very reformist, will become prime minister," said Bharat Shah, director of Vikram Kenia Securities.
The stock market plunged 11.1 percent on Monday as fears mounted about the pace of future reforms after the ruling, pro-reform government lost to Congress and its leftist allies, including communist parties, in a surprise election result.
Stock brokers reeling from the losses took to the street outside the Mumbai exchange and chanted "Sonia Gandhi Hai Hai" (Sonia Gandhi Down Down).
The Mumbai index ended up 8.25 percent, or 371.86 points, at 4,877.02. Its biggest daily points gain was on March 24, 1992 when it rose 426.05 points, or 13.14 percent, in the midst of a bull run fuelled by reforms introduced by Singh.
Monday's stock market losses had wiped $27 billion off the value of India's listed companies as the Bombay index recorded its second biggest fall, while Tuesday's rise clawed back $16 billion.
India's central bank said on Tuesday it expected the economy to expand by more than 6.5 percent in the year to March 2005.
On the stock market, most sectors were up on Tuesday.
Software bellwether Infosys Technologies Ltd was up eight percent while rival Wipro Ltd rose 22.3 percent.
Among bank stocks, beaten down badly in the past three weeks, Punjab National Bank leapt 16 percent and Bank of Baroda soared 21 percent.
State-run firms were relatively subdued as traders believe there is little chance of more government asset sales in the near term after the Communist Party of India repeated on Monday a call for the privatisation ministry to be shut down.
One candidate for further government stake sales, Bharat Petroleum Corporation, fell 4.9 percent.
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