Extending gains for the third day in succession, the Bombay Stock Exchange bellwether Sensex today closed higher by 94 points today even though it lost a big chunk of gains posted in early trade.

Markets shot up by over 200 points in the morning taking positive cues from Asia where indices mirrored robust show by Wall Street overnight. Data showing a major rise in business production and a significant fall in unemployment claims helped US stocks end higher.

Banks and financial stocks on BSE, which were under pressure after the RBI raised provisioning norms for bad debts, surged in early trade. But soon after they came under selling pressure pulling down the Sensex after RBS posted 1.5 billion pounds operations losses for the September quarter.

But continuing positive sentiment on PSU shares averted a sharp fall. Hogging the limelight throughout the day, the PSU index rose 3.91 per cent after the government yesterday announced offloading 10 per cent stake in all listed PSUs.

"The market today traded in a narrow range. The overall trend is on the upside ... After days of panic selling, the market is in a bounce back mode and more uptrend is likely," said Ashika Stock Brokers Research Head Paras Bothra.

PSU stocks, led by MMTC, were much in demand. MMTC Ltd, the biggest state-run trading company, hit the daily upper limit of 20 per cent before closing at Rs 36,146.85. The sectoral index jumped 3.91 per cent.

The broader Nifty also jumped 30.60 points to close at 4,796.15 from its last close.

As per data available with market regulator SEBI, FIIs made investments of more than USD 69 billion so far in the current calendar year.

The mid-cap and small-cap shares remained in great great demand for the second consecutive day. Their respective indices spurted by 2.27 per cent and 2.24 per cent.

Tata Steel, India's largest private sector steel maker, gained 3.08 per cent after the company announced that steel sales at its Indian operations rose by 38 per cent in October over the correspond period last year.

PSU shares MMTC soared by 20 per cent, STC 14.84 per cent, Dredging Corp 12.18 per cent, RCF 11.76 per cent, Hind Copper 10 per cent and NMDC by 10 per cent.

Sensex Jaiprakash Associates shot up by 4.76 per cent, followed by SBI 3.06 per cent. Metal major Sterlite rose 2.21 per cent, while engineering giant L&T gained 2.17 per cent. HDFC by 1.93 per cent and Sun Pharma by 1.78 per cent.

Tata Power, however, dropped by 3.84 per cent. Hindustan Unilever lost 2.12 per cent, Hero Honda 1.98 per cent and ITC by 1.53 per cent.

The market breadth remained strong with 1,944 gainers against 780 losers on the BSE.

The trading volume was high at Rs 6,019.18 crore Larsen & Toubro was the most active share with highest turnover of Rs 707.