Gaining for the third day, the Sensex ended at 35,165.5, up 241 points, or 0.7 per cent. The Nifty rose 83.5 points, or 0.8 per cent, to 10.688.7. Both the indices have rebounded 2.5 per cent in the last three trading sessions. In the preceding week, they had dropped 3.4 per cent each amid a sharp uptick in oil prices and drop in the rupee’s value against the dollar.

Oil prices fell after Saudi Arabia and Russia vowed to increase production to keep prices in check and offset the shortfall created by the drop in production in Venezuela and Iran. Brent crude fell below $75 a barrel on Monday, down 6 per cent from a multi-year high of $80 touched on May 23.

Investor appetite received a further boost after the rupee extended gains against the dollar for the third day. The rupee on Monday closed at 67.42, 1.5 per cent higher, compared to the 16-month low of 68.42 touched on May 23. Other emerging market currencies also gained as the US 10-year gilt yield dropped from 3.11 per cent on May 17 to 2.93 per cent on Monday.

“The key driver for emerging markets will continue to be exogenous factors, in particular the performance of the US dollar and bonds, which have been key headwinds for the asset class in recent weeks,” Paul Greer, portfolio manager, Fidelity International, said to Bloomberg.

Till last week, domestic stocks and currency saw a huge selloff, as a rising US dollar and bond yields prompted investors to take money off risky assets.

Foreign portfolio investors (FPIs) have pulled out $1.2 billion (Rs 84 billion) of equities this month. Despite stocks rebounding, FPIs have continued to take money off the table. On Monday, they sold shares worth Rs 8 billion, while domestic institutions bought shares worth over Rs 10 billion, the provisional data showed.

Shares of oil marketing companies — Indian Oil, Hindustan Petroleum Corp and Bharat Petroleum Corp — gained 4 per cent to 6 per cent on Monday. Shares of airline companies such as InterGlobe Aviation (that runs IndiGo), Jet Airways and Spicejet gained 3 per cent, 8 per cent and 20 per cent, respectively.

Shares of technology companies fell as the dollar weakened. Tata Consultancy Services (TCS) declined 2.4 per cent, while Infosys fell 1.2 per cent.

Sun Pharmaceutical was the biggest Sensex gainer with 7 per cent on analyst upgrades after March-quarter earnings beat expectations. Overall, 1,843 stocks gained, while 848 ended with losses on the BSE.

While domestic factors such as the monsoon and earnings will impact market performance, the market trajectory will be guided more by the movement in the dollar and US yields, according to experts. The US payrolls data due on Friday will also be key, since it will set the tone for the Federal Reserve meeting scheduled for June 12-13.