Benchmark share indices ended over 1% higher on Tuesday led by rate sensitive shares on hopes that interest rates would ease after the new finance minister P Chidambaram hinted at some monetary easing by the central bank.
Buying interest in software shares also boosted sentiment.
The Nifty ended above the crucial psychological levels of 5,300.
The index closed at 5,337, up 54 points and the Sensex advanced 189 points to close at 17,602.
Meanwhile, the European markets were trading on a flat note as investors took comfort at the prospect the region was edging toward a new plan to resolve its debt crisis and calm the headwinds buffeting the global economic recovery.
The CAC 40 index was up 6 points at 3,407, DAX was up 3 points at 6,921 and the FTSE 100 was trading lower by 19 points at 5,789.
The Asian markets ended marginally higher as investors maintained hope that Europe will take further action to tackle its debt crisis and the United States and China will adopt stimulus measures to boost growth.
The Hang Seng advanced 74 points to close at 20,072, Nikkei jumped 77 points to 8,803 and the Shanghai closed marginally higher at 2,158 levels.
Back home, IT stocks witnessed buying in trades today after Cognizant Technology Solutions Corp raised its adjusted full-year profit forecast at a time when its Indian peers have been painting a gloomy picture for the rest of the year on slowdown in global outsourcing spends.
The BSE IT index was the top sectoral gainer, up 2% to close at 5,450 levels. TCS, Infosys and Wipro are among the top gainers on the Sensex from this space.
Tata Motors was the top gainer among the Sensex stocks, up 4.4% to close at Rs 239.
GAIL India, Bajaj Auto, ICICI Bank, SBI, Jindal Steel, HDFC, BHEL, Maruti Suzuki, ITC and NTPC also ended highr by 1-3%
On the other hand, Hero MotoCorp, Bharti Airtel, Sun Pharma, Reliance Industries and Dr Reddy's Labs succumbed to the profit booking and ended marginally lower in trades today.
Most of the sectoral indices ended higher in trades today.
Besides IT, auto index advanced nearly 2% or 156 points to shut shop at 9,328.
Realty, bankex, capital goods, FMCG, power, PSU, metal and oil & gas indices also advanced 0.2-1.6% each .
At the same time, healthcare and consumer durable indices ended marginally lower.
Among the individual stocks, Standard Chartered Plc, the lone India listed foreign bank, tanked 20% to Rs 83 on reports that the New York's top bank regulator threatened to strip the state banking license of Standard Chartered Plc, on violating of U.S money laundering law by conducting $250 billion of transactions with Iranian banks.
Escorts Limited rallied 5.3% at Rs 62.70 after reporting over two-fold jump in net profit at Rs 26.88 crore for the quarter ended June 30, 2012, due to new launches, better product mix and low inventory costs.
The company had posted a net profit of Rs 13.22 crore in the corresponding quarter previous fiscal.
Bharat Earth Movers Limited (BEML) dipped 2.2% to Rs 310, close to its lowest level since December 2008, after reporting net loss of Rs 39 crore for the quarter ended June 30, 2012, due to fall in operational income and higher operating cost.
The company had reported a net profit of Rs 8.61 crore during the corresponding quarter of previous fiscal.
The broader markets ended on a flat note. The BSE mid-cap and small-cap indices advanced 0.3% each.
The overall breadth was positive as 1,522 stocks advanced while 1,285 declined.
