Police have blamed the bombings, which killed 48 people, on an outlawed Muslim students group, acting along with a Pakistan-based Kashmiri separatists.

Among the victims were eight people from western Gujarat state, where at least 1,000 people, most of them Muslims, died last year in revenge killings following an attack on a train carrying Hindu pilgrims from the northern holy town of Ayodhya.

The eight Gujaratis, whose bodies were being taken back on Tuesday to their home town of Surendranagar, had been on a pilgrimage to a Hindu festival and were in Bombay on holiday.

K. Chakravarthy, Director-General of the Gujarat police, said authorities had posted police along the route where the bodies of the eight Gujaratis would be returned for cremation.

In Mumbai, police raided slums and picked up people for questioning about Monday's bombs, which were planted in two taxis.

Bloodstained footpaths, broken glass and debris marked the blast sites, one at a crowded gold and jewelry market, the other near the Gateway of India, a huge waterfront arch built by India's former British rulers.

But the city opened for a normal working day with its usual heavy traffic and packed trains.

"Every moment, I feel there is danger in Mumbai. But still, I have to put my life on the line and go out to work today," said Sheikh Abdul Sheikh, a 32-year-old tailor waiting at a bus stop.

Financial markets rallied, shrugging off the blasts. The key 30-share index was up 2.14 percent in late morning trading after closing down 2.92 percent on Monday. Currency and bond markets also recovered.

Deputy Prime Minister Lal Krishna Advani was to fly to Bombay to visit some of the 150 injured in the attacks.

Police said they suspected the outlawed Students Islamic Movement of India (SIMI), working with the Pakistan-based Kashmiri separatist organisation Lashkar-e-Taiba.

No one has claimed responsibility. Police are questioning the owner of one of the taxis used in the blasts about a couple who hired him on Sunday for a tour.

Pakistan on Monday condemned the bombings.

India, which came close to war last year with its nuclear-armed neighbor, has traditionally blamed Pakistan for bombings and other attacks in disputed Kashmir and elsewhere.

But Monday's bombings coincided with a thaw in relations between the two countries.

The explosions were the worst in Mumbai since 1993, when a series of bombs killed at least 260 in what was seen as retaliation for the deaths of minority Muslims after Hindu-Muslim riots.

Those riots were triggered after Hindu zealots demolished a 16th century mosque in the town of Ayodhya which they said had been built by Muslim Mughal invaders on top of a Hindu temple.

Police have long feared a major attack or communal clashes in Mumbai after the 2002 riots in the nearby state of Gujarat.

Coincidentally, Indian archaeologists on Monday released a court-ordered report saying they had found evidence of a Hindu temple under the ruins of the demolished mosque.

Hindus in Ayodhya, in the northern state of Uttar Pradesh, burst crackers and lit up their homes with candles and earthen lamps overnight to celebrate the report.

Police also tightened security across Uttar Pradesh, a traditional stronghold of the SIMI group.

The tensions came at a sensitive time for the state, plunged into political upheaval after its Chief Minister Mayawati, who uses only one name, said on Monday she planned to quit.