Mumbai: Indian equity gauges defied hardening oil prices and local bond yields to advance nearly 1% Thursday, snapping a week-long losing streak, as the dollar retreated to its lowest in three months and yields on US long bonds cooled from levels last seen during the subprime crisis two decades ago.

The Nifty rose 153.55 points, or 0.64%, to close at 24,231.85, while the Sensex gained 628.04 points, or 0.82%, to end at 77,537.72. Midcap and smallcap stocks also advanced, with the Nifty Midcap 150 gaining 0.3% and the Nifty Smallcap 250 climbing 0.6%.

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"Wednesday's measures by the US Fed to contain the long-tenure bond yield led to a fall in the dollar index, which augurs well for emerging markets and commodities," said Sunny Agrawal, head-fundamental research, SBI Securities. "This is also likely to help ease the pressure on USD-INR and reduce the probability of a rate hike in India, thereby leading to a rally in rate-sensitive stocks Thursday."

Wednesday's move by the US Treasury to double the buyback of 10-30-year paper pulled the 30-year yield off 5.33%, a 19-year high.

But the Indian 10-year benchmark government bond yield jumped five basis points, as minutes of the latest monetary policy meeting were interpreted by the debt markets to be more hawkish than anticipated.

One basis point is a hundredth of a percentage point.

The Indian 10-year yield closed at 6.87% on Thursday, versus its previous close of 6.82%, CCIL data showed.

"The yield will sustain and trade between 6.80% to 6.90% levels for some time, as markets will take time to absorb this shock," said Alok Singh, head of treasury at CSB Bank. "If there is more bad news from the global geopolitical front, further uptick can be expected."

The minutes of the last policy review showed that members of the rate-setting panel were more prepared to raise rates if inflation risks materialise, with concerns mounting over higher food, fuel and input costs feeding into broader price pressures.

To be sure, fund flows into Indian risk assets are also a function of US yields. The dollar and US government risk-free returns are crucial data points that dictate how much capital reaches emerging markets, said Gaurav Garg, head-research, Lemonn.

Garg, however, said the recovery remains vulnerable to external factors, with crude oil prices and the rupee continuing to influence inflation expectations and foreign flows.

"With Brent near $92 and the rupee at 95.5, India is still importing the inflation that keeps global yields elevated," he said. "We would treat this as a relief rally on a foreign catalyst until the Federal Reserve chair Kevin Warsh speaks at Jackson Hole on the 28th."

Oil prices traded higher after US President Donald Trump threatened "economic warfare" against Iran and warned about financial penalties for countries supporting Tehran. The UAE also said it was suspending trade with Iran.

Brent crude futures, the global benchmark, climbed 2.5% to $93.96 a barrel.

India VIX declined 6.57%, indicating a moderation in near-term volatility.

Eternal was the top gainer among the Nifty stocks, rising 2.48%, followed by Shriram Finance 2.1%, Kotak Bank at 1.82% and ITC at 1.72%. Bajaj Finance gained 1.37%.

Foreign portfolio investors sold shares worth Rs 583 crore on Thursday. Domestic institutions were buyers to the tune of Rs 3,537 crore.

The rupee, meanwhile, was nearly unchanged, as both positive factors from a softer dollar index along with central bank intervention and negative factors from high crude oil prices and importer demand pulled the currency in opposite directions.

The rupee closed at 95.70 Thursday, compared with its previous close of 95.75, with the dollar index at a three-month low of 98.84, according to Reuters.

"Central bank intervention appears to have been important in containing volatility amid persistent dollar demand from corporates and oil companies," said a trader from a public sector bank.

The rupee is expected to stay in the range of 95.50 to 96 Friday. The currency has depreciated more than 0.8% in the fiscal year so far.