The 30-share Sensex ended down up 272 points or 1.6% at 16,950 and the S&P CNX Nifty gained 84 points or 1.7% to close at 5,139.
Earlier in the day, the markets opened higher owing to firm Asian cues. However, amidst volatility the BSE benchmark index touched a low of 16,701 only to recover. Later, the markets edged higher in late noon trades, amid firm European cues, with rate-sensitive shares leading the gains.
In the broader markets, both the midcap and the smallcap indices, up 0.6% each underperformed the Sensex which gained 1.6%.
On the global front, world shares rose and the euro hovered near a three-week high on Friday, lifted by central bank preparations for coordinated liquidity operations in the event of a credit shock after Sunday's Greek election.
Expectations of more monetary stimulus were also boosted by a British plan to flood its recession-hit economy with cash, and after economic data in the United States rekindled talk of more Fed easing. But the Bank of Japan left its policy unchanged on Friday after a two-day meeting.
Markets across Asia closed higher. The top gainers were Hang Seng up 2% followed by Straits Times and Taiwan Weighted which ended up 1% each.
European shares continued to trade firm with the CAC-40, DAX and FTSE-100 up 0.6-1 %.
Back home, all the sectoral indices closed in the positive zone. BSE Auto and Bankex indices surged 2% each followed by counters like Realty, Capital Goods, FMCG , Power, Metal, IT and Healthcare all gaining by 1% each.
Rate sensitives gained ahead on the likelihood of a rate cut by the RBI in its mid-quarter policy review. ICICI Bank and HDFC Bank up 2.5-3% were the major gainers in the banking space.
In the Auto space, Tata Motors surged over 5% and was the top Sensex gainer after its chairman, Ratan Tata, bought 425,000 shares through open market transaction. Moreover, Tata Motors today said its global sales grew 12% in May. Among other Auto shares, Hero Moto, M&M and Maruti Suzuki gained between 2-3%.
Other notable gainers included Coal India, Hindalco, Sun Pharma, Bharti Airtel, TCS, Hindustan Unilever, L&T and Tata Power up 2-3%.
Sterlite Industries and Bajaj Auto down 1.5% each and ONGC down 0.7% were the only losers among the Sensex-30.
Shares of cement makers continued their upward march. Grasim Industries, India Cements, Dalmia Cement Bharat and Kesoram Industries rallied more than 5% each, while Ambuja Cements, ACC and UltraTech Cement up between 2-3% were the prominent gainers.
Overall breadth was positive as 1,523 stocks advanced while 1,169 declined on the BSE.