Benchmark share indices gained nearly 3% on Wednesday, amid a rally in global equities, fuelled by short covering and value buying across the board with rate-sensitive shares leading the gains on hopes of a rate cut by the RBI.
The 30-share Sensex ended at 16,454 up 434 points or 2.7% and the 50-share Nifty ended at 4,997 up 134 points or 2.75%.
The Sensex and the Nifty reached an intra-day high of 16,495 levels and 5,010 mark, respectively.
Japan's Nikkei average rose on Wednesday, recovering further from Monday's six-month closing low as investors looked to policy makers to counter the euro zone crisis, and Australian and US data offered some positive news.
Hang Seng, Kospi, Taiwan and Strait Times ended 1-2% higher.
European shares and the euro gained on Wednesday as the acute financial problems in Spain and recent data confirming a widespread economic slowdown across Europe fuelled hopes that the region's central bank would respond with stimulus measures.
CAC, DAX and FTSE have gained between 1-2%.
Back home, all the sectoral indices ended in positive territory.
BSE Auto and Capital Goods indices surged nearly 4% followed by sectors like Power, Banks, FMCG, Metal, Realty, Consumer Durable, PSU, Oil & Gas and IT, all zooming between 2-3.5%.
Interest rate sensitive counters were witnessing strong buying demand on expectations that the RBI will cut interest rates at mid-quarter monetary policy review on June 18 to support the slowing economy.
From the Auto pack, Tata Motors topped the buyers list in Sensex 30 stocks, up nearly 6% at Rs 234.
Hero MotoCorp surged 4%, extending its past two days 2.4% gain on reports that the company proposed to invest Rs 2,575 crore to set up two new plants in Rajasthan and Gujarat and an integrated research and development (R&D) centre.
The expansion plans would boost its annual production capacity to nine million from the current seven million, according to the report.
M&M gained over 3%. According to Reuters report, CLSA upgraded Mahindra and Mahindra to "outperform" from "underperform" and raises its 12-month target price to Rs 770 from Rs 720.
Maruti Suzuki gained by nearly 3%.
In the Capital Goods space, BHEL and L&T surged between 2-5%.
Shares of infrastructure companies also gained on expectation that cut in interest rates would help lower operational costs.
Banking shares gained ground on hopes of a rate cut by the Reserve Bank in the upcoming policy review which is scheduled to be announced on June 18, 2012. HDFC Bank, ICICI Bank and SBI gained between 2-4%.
Shares of FMCG companies rallied on hopes of good rainfall this year will help increase farm output, which will help increase income, thereby boosting sales.
The prominent gainers from the space were ITC and Hindustan Unilever, up 3-4% each.
In the realty segment, DLF was up 2%. Among other realty shares, Sobha Developers, HDIL and Unitech were up 3-7% each.
Metal stocks gained on bargain hunting. Jindal Steel, Tata Steel, Sterlite and JSW Steel up 2-5% were the major gainers.
From the Power segment, NTPC extended yesterday's rally, ended 4% higher. The stock surged yesterday after commissioning of the Unit # 3 of 660 MW of Sipat Super Thermal Power Station Stage-I.
The other notable gainers among the Sensex stocks were TCS, Cipla, GAIL, Bharti Airtel, ONGC, RIL, Infosys, and Wipro.
Index heavyweight, Reliance Industries rose 2%, extending its two day gain.
The broader markets underperformed benchmarks - the BSE Midcap and Smallcap indices were up 1.5-1.8%.
In the second line shares, TV18 Broadcast surged 16% to Rs 22 on reports that the media firm along with Viacom18 Media will form a joint venture (JV) -- IndiaCast -- for distribution of TV channels.
Essar Oil ended higher by 7% at Rs 53 after the company said it has completed expanding its Vadinar refinery in Gujarat to 20 million tonnes per annum (mtpa), or 405,000 barrels a day, from 18 mtpa, investing Rs.1,700 crore.
Gujarat Pipavav Port rallied 6% to Rs 59 after its board of directors approved expansion plan of over Rs 1,000 crore.
The market breadth in BSE remained healthy with 1,849 advancing and 894 shares declining.