The 30-scrip sensitive index (Sensex) of the Bombay Stock Exchange (BSE), which opened lower at 15,207.96 points, ended trade at 15,518.49 points, up 498.33 points or 3.32 percent.
The index had risen to a high of 15,530.947 points in intra-day trading during the last 15 minutes, but slipped to end a tad lower.
The Nifty of the National Stock Exchange (NSE) too shut shop in the green at 4,605 points, up 3.31 percent.
Broader market indices closed in positive terrain, with the BSE midcap index ending 3.59 percent up, while the the BSE smallcap index closed 4.11 percent higher.
All the 13 sectoral indices ended on the gaining side, with greater buying activity seen in realty, metal, auto and banking stocks.
The market breadth was positive, with 2,215 stocks advancing, 517 declining and 62 remaining unchanged.
All 30 stocks on the Sensex ended up as gainers, prominent among them being DLF, up 7.21 percent at Rs.400; ICICI Bank, up 6.53 percent at Rs.756.95; Maruti Suzuki, up 6.41 percent at Rs.1,373.60 and Tata Steel, up 6.04 percent at Rs.470.50.
In other Asian markets, the Nikkei 225 Stock Average, a key index of the Tokyo Stock Exchange, closed 82.19 points higher than its previous close at 10,517.19 points, a gain of 0.79 percent.
The Hang Seng, the primary index of the Hong Kong Stock Exchange, too, was ruling higher at 20,861.3 points, up 426.06 points or 2.08 percent.
European shares were up with economic reports on Britain and Germany giving positive indications about an economic revival.
In Britain, the FTSE 100 index was ruling 1.42 percent higher at 4,783.72 points after the Bank of England said inflation would be well below the target of 2 percent in two years.
Its French peer, the CAC 40, too was up 1.25 percent at 3,551.06 points.
Germany's DAX rose 1.7 percent to 5,441.16 points after the government said the gross domestic product had risen 0.3 percent in the second quarter ending June.