In choppy trade, the BSE index opened better but dropped to a low of 28,435.45 on profit-booking. However, it quickly bounced back to hit a high of 28,784.35 and settled for the day at 28,736.38 -- a gain of 298.67 points, or 1.05 percent.
The surge comes after the barometer lost 492.70 points in the previous two sessions after rising inflation dashed hopes of aggressive rate cuts by the RBI.
Besides, sentiment was buoyed by data that showed Foreign Direct investment (FDI) in India more than doubled to USD 4.48 billion in January, the highest inflow in last 29 months.
The 50-share NSE index Nifty reclaimed the 8,700-mark by rising 90.15 points, or 1.04 percent, to close at 8,723.30 after shuttling between 8,742.55 and 8,630.80 intra-day.
Last week markets were spooked on speculation US Federal Reserve will in its policy meeting starting soon drop hints of an early rate hike, which could come as early as June-July. However, that buzz eased after tepid US manufacturing data. The Fed's 2-day monetary policy meeting begins on Tuesday.
Out of the 30-share Sensex, 23 stocks ended with gains.
"Pharma and metal stocks helped indices rise and better trend in in global markets further strengthened domestic markets," said Delhi-based stock broker Deepak Pahwa.
Among pharma stocks, Dr Reddy’s climbed 3.66 per cent, Cipla jumped 2.11 per cent and Sun Pharma gained 1.12 percent.
Investors, after remaining sellers in the past few sessions, were seen accumulating stocks, brokers said.
A higher opening in the Europe following overnight rally on the US markets boosted sentiments, they added.
Other Sensex-based gainers which provided support include Hindalco, Sesa Sterlite, HDFC, Tata Motors, BHEL, L&T, Axis Bank, Tata Steel, RIL, ITC, M&M, NTPC and ICICI Bank.

Sectorally, the BSE Healthcare index gained the most by rising 1.82 per cent, followed by Capital Goods index up 1.70 percent, FMCG index 1.51 percent, Consumer Durables 1.47 percent, Oil & Gas 1.44 per cent and Auto 1.22 percent.
Meanwhile, foreign investors sold shares worth Rs 762.55 crore on Monday as per provisional data.

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