The cabinet, which met on Monday to discuss the announcement made by Prime Minister Atal Bihari Vajpayee at the Ficci annual session last Saturday, approved amendments to the Companies Act, including the provision for shares buyback.

An official spokesman told reporters after a two-hour cabinet meeting that, "The law ministry is working out the modalities. The details would be announced soon."

The cabinet decision came amid speculation that the governmentmight promulgate an ordinance to allow shares buyback.

Official sources said the department of company affairs preferred the introduction of buyback through a bill instead of an ordinance.

The buyback trigger saw a major shift in the market sentiment which had been battered following the US-64 scare. The Sensex shot up by 105.25 points to close at 2,889.71 points. Buyback candidates were in the limelight, registering substantial gains, with select bank and fast-moving consumer goods stocks hitting the upper end of the price band on local bourses.

Reliance registered a higher turnover on the BSE, with a phenomenal volume of 76.11 lakh shares changing hands The stock was locked at the upper limit of the price band on the BSE and NSE at Rs 115.50 and Rs 115.25 respectively. Reliance GDR was traded at $5.30 at a discount of 3.14 per cent to its underlying stock price.

The Tata group representatives like Tata Telecom, Tata Chemicals and Tata Power hit the upper end of the price band, while Telco and Tiscoregistered gains to the tune of 5-7 per cent on an average amid substantial rise in their volumes.

The GDR markets also participated in the upward march. While the Skindia GDR Index posted 552.21 points registering a sharp recovery of 4.41 per cent during mid-session, GDRs of auto major Bajaj Auto were traded at a premium of 30.69 per cent. GDRs of ITC and State Bank were also quoted at a premium of 19.09 per cent and 13.40 per cent respectively.

Market sources also attributed the recovery made by the Sensex to the fresh positions built by local punters at the kerb during the weekend (after the prime minister's announcement) which had to be translated into official trades. The index marched up to breach the 2,900 mark during the first phase of the session, however, consolidated at the 2,887 levels during the last phase.

Figures released by local bourses also threw light on the crucial aspect of Monday's recovery. While FIIs continued to be net sellers to the tune of Rs 23 crore on the BSE, localinstitutions also sold a huge chunk of over Rs 17 crore.

While short positions on the BSE stepped up slightly to Rs 330 crore, long positions also rose to a high of Rs 861 crore.

"The recovery in the market indices does not signify a change in the basic trend to bullish, but is more of a bear market correction," said Maulik Sharedalal of Kaji & Maulik Securities.

"Technically the index has entered oversold zone on its weekly and monthly charts. The gap between price bars and moving averages has widened. All this could mean better times for few weeks. We expect the Sensex to rise to face resistance at its past level of 2,933 and later in the band of 2,985 to 3,003 points," he said.

According to market sources, FIIs like Morgan Stanley and Socgen Crosby were reported to have placed buy orders at the counters of ITC and Satyam Computers, Fidelity was reported to have bought Pentafour Software.

While the buyback news played a crucial role in pushing up prices of pivotals like Reliance and State Bank,short-covering also saw substantial price recovery.

Among the index stocks, Smithkline Consumer and Bata India touched new highs on the BSE.