During trading, the 30-share BSE Sensex jumped 897.77 points or 1.61 per cent to reach 56,566.80. However, it lost most of its gains and ended up just 33.20 points or 0.06 per cent higher at 55,702.23.
Similarly, the NSE Nifty closed at 16,682.65, up 5.05 points or 0.03 per cent marginally.
Tech Mahindra, Infosys, HCL Technologies, Tata Steel, Wipro, ITC, HDFC, TCS, Kotak Mahindra Bank and ICICI Bank were among the top gainers on the Sensex.
On the other hand, IndusInd Bank, Sun Pharma, Nestle, UltraTech Cement, Reliance Industries, PowerGrid, Bajaj Finserv and Titan declined.
In other Asian markets, Hong Kong closed lower, while Shanghai was up marginally. Markets in Japan and Korea were closed for the holidays.
Stock markets in Europe were trading with gains in the afternoon session.
The Federal Reserve on Wednesday raised its prime short-term interest rate by half a percentage point. This was done to control the rapidly rising inflation.
Mitul Shah, Head of Research, Reliance Securities said that the US stock markets rose strongly after the US Federal Reserve indicated a softer stance on interest rate hikes.
Domestic stock markets fell on Wednesday after the Reserve Bank of India raised the prime lending rate to 4.40 per cent to control inflation.
Meanwhile, Brent crude, the international oil standard, rose 0.27 per cent to $110.4 per barrel.
Foreign institutional investors sold shares worth a net Rs 3,288.18 crore on Wednesday, according to provisional stock market data.