Equity indices surrendered early gains to close flat on Thursday as profit-taking took hold amid a rally in global markets, even as the US Federal Reserve hiked rates on expected lines to combat inflation.

Recovering after a severe drubbing in the previous session following the RBI's surprise rate hike, the 30-share BSE benchmark Sensex soared almost 900 points in opening trade.

However, the index lost momentum towards the fag-end to close just 33.20 points or 0.06 per cent higher at 55,702.23, snapping its three-session losing streak.

On similar lines, the NSE Nifty inched up 5.05 points or 0.03 per cent to finish at 16,682.65.

Tech Mahindra topped the Sensex gainers' list with a jump of 4.07 per cent, followed by Infosys, HCL Tech, Wipro, Tata Steel, Kotak Mahindra Bank and TCS.

In contrast, IndusInd Bank, Nestle, UltraTech Cement, Sun Pharma, Reliance Industries, PowerGrid, Bajaj Finserv and Titan were among the main laggards, losing as much as 4.32 per cent.

The Federal Reserve intensified its fight against the worst inflation in 40 years by raising its benchmark short-term interest rate by a half-percentage point on Wednesday and announced a timeline to trim its USD 9 trillion balance sheet.

However, Fed Chairman Jerome Powell ruled out a 0.75 percentage point hike at its next meeting, triggering a relief rally on Wall Street.

"The fear of an aggressive rate hike by the Fed was the prime reason for global volatility during the past few days. Fed's decision to remain less hawkish with a 50 bps rate hike downplayed the investors' worries, helping the global markets to rally.

"However, the domestic market trimmed its gains towards the end of the day following a sell-off in US futures," said Vinod Nair, Head of Research at Geojit Financial Services.

Mitul Shah, Head of Research at Reliance Securities, said, "US equities rallied, recording the biggest one-day gain since 2020, after Federal Reserve comments suggested that the central bank is unlikely to consider a higher interest-rate hike of 75 basis points in the coming months."

"Moreover, rate hike and balance sheet unwinding quantum was on expected line without any negative surprise, which was already factored in market correction over past few days. It was like a relief rally to some extent," he added.

In the broader market, the BSE smallcap gauge dipped 0.32 per cent while the midcap index went down by 0.21 per cent.

Sectorally, BSE power gained the most by 1.94 per cent, followed by IT (1.86 per cent), teck (1.81 per cent) and utilities (1.51 per cent). Among the laggards, realty fell by 1.57 per cent, healthcare 0.56 per cent, FMCG 0.51 per cent and energy 0.43 per cent.

Meanwhile, India's services sector activities improved further and touched a five-month high in April driven by a surge in incoming new work orders that boosted business activity and supported a renewed increase in employment, according to a survey.

The seasonally adjusted S&P Global India Services PMI Business Activity Index jumped to 57.9 in April, from 53.6 in March, highlighting a sharp rate of expansion that was the fastest since last November amid mounting price pressures.

Elsewhere in Asia, Hong Kong settled lower, while Shanghai was marginally higher. Markets in Japan and Korea were closed for holidays.

Exchanges in Europe were trading with gains in the afternoon session.

International oil benchmark Brent crude gained 0.27 per cent to USD 110.4 per barrel.

The rupee appreciated by 16 paise to settle at 76.24 (provisional) against the US dollar on Thursday.

Foreign institutional investors offloaded shares worth Rs 3,288.18 crore on Wednesday, according to stock exchange data.