In the last hour of trade the ASX200 gained sharply, to close up nearly 2 per cent at 3416, after testing the 3200 mark around noon.
The All Ords finished 56 points ahead to 3386.
CMC Markets head of trading James Foulsham said no one had seen the market like this before.
"The market can do funny things though, and when it finally does turn around it is probably going to rally hard."
After four consecutive trading days of losses, resource and financial stocks pulled the market higher.
The mining giants led the rebound, with BHP picking up 3.7 per cent to $21.90, while Rio added nearly 5 per cent to $60.01.
Commonwealth Bank gained more than 5 per cent to $30.95, Westpac found nearly 5 per cent to $16.35, while NAB was relatively flat at $19.00 and ANZ gained 2.7 per cent to $13.36.
Analysts this morning had written off the market's chances of producing a positive finish, saying today would cap off an "awful week".
"It is one car crash after another for the markets right now and the risk of global economic recession is deepening by the day," GFT head of derivatives Martin Slaney said this morning.
Wall St hits fresh lows
The Dow Jones sank to a fresh five-and-a-half year low overnight, losing 5.46 per cent, the Nasdaq lost 5 per cent and the S&P500 plummeted 6.6 per cent to its lowest finish in a decade.
"Any remaining confidence in global markets has been well and truly trampled on today as investors throw in the towel," said David Evans, an analyst at BetOnMarkets.com.
"After months of bailouts, mini rallies, more bailouts and false dawns, investors have had enough."
European stocks also took a tumble overnight, with London's FTSE100, Frankfurt's DAX and the CAC 40 in Paris all losing more than 3 per cent each.
Back home, the ASX 200 fell to its lowest level since May 2004 yesterday.
Shares tank as global panic spreads
Share market 2pc higher at noon
Dow’s drop befuddles analysts
Markets are battered again
