Key benchmark indices began the August F&O series on a positive note with both the Sensex and the Nifty registering over 1% gain.
The BSE benchmark index closed up 200 points at 16,839 and the Nifty gained 57 points at 5,100.
The gains were led by private banks, TCS, Infosys and Reliance Industries.
Earlier in the day, after a gap up opening, markets trimmed gains in the afternoon trades as the key European markets opened in the red. Also, profit booking in SBI and BHEL weighed on the indices.
Meanwhile, the broader markets corrected after initial gains.
The midcap and the smallcap indices lost nearly 1% each, underperforming the Sensex.
In Asia, markets jumped as a pledge from the European Central Bank to keep the euro zone intact and Samsung Electronics Co.'s record profit buoyed sentiment.
Hang Seng jumped 2%. Nikkei gained 1.5% while Kospi and Taiwan markets surged over 2% each.
European stocks and the euro fell on Friday as markets, hungry for detail on any ECB plan to repel a debt attack on Spain and Italy, grew cautious after Germany's Bundesbank restated its doubts about buying bonds of troubled euro zone nations.
CAC and FTSE were flat with a positive bias while DAX was down 0.2%.
Among the sectoral indices, BSE metal index was the top gainer, up 2% followed by FMCG, IT, Auto and consumer durables indices up around 1% each.
Bankex index closed for the day with 0.4% gain. However, shares of public sector undertaking banks were under pressure on the bourses after reporting weak set of financial numbers for the quarter ended June 2012 and asset quality concerns.
Union Bank of India plunged 8% to Rs 164 on reporting deterioration in asset quality in the June quarter. Punjab National Bank tanked 5.3% at Rs 715 after the bank said the gross NPA in June quarter went up to 3.34% from 2.93% in March quarter.
Metal shares shone with Sterlite, Tata Steel and Hindalco gained 3% each. Metal shares gained momentum as metal prices rose on the London Metal Exchange yesterday.
The top gainers among the Sensex stocks were Tata Motors up 4%, HDFC Bank, ICICI Bank, Bharti Airtel, ITC and TCS up 2-3%.
With today's gain, TCS toppled state-owned ONGC to become the country's most valued company with its market capitalisation soaring to over Rs 2.38 lakh crore, driven by a spurt in share price.
ICICI Bank gained after the private sector lender reported a better-than-expected 36% year-on-year growth in net profit at Rs 1,815 crore for the quarter ended June 2012, on back of higher interest income.
Market heavyweight - Reliance, moved up 1.4% at Rs 720 on short covering.
On the other hand, SBI shed 4% followed by Hero MotoCorp, BHEL down 1.5-2%.
Among other stocks, ACC was up 3% at Rs 1,297 on reporting 26% year-on-year growth in consolidated net profit at Rs 415 crore for the second quarter ended June 2012, on the back of higher sales volumes.
Total consolidated turnover in the quarter rose by 15% to Rs 2,919 crore as compared to Rs 2,539 crore in the same quarter of 2011.
Godrej Consumer Products closed up 5% after gaining over 8% at Rs 659, also hits lifetime high, on the National Stock Exchange.
The counter has seen huge trading activities with a combined 278,874 shares have changing hands so far, against an average around 162,000 shares that were traded daily in past two weeks.
Sun TV Network and SpiceJet tanked 11% each on the bourses on reports that the Central Bureau of Investigation (CBI) has questioned the Maran Brothers in Aircel-Maxis deal case.
BSE market breadth was negative.
Out of 2,892 stocks traded, 1,702 stocks declined while 1,064 stocks advanced on the BSE.