Foreign inflows continued unabated, which helped. The NSE Nifty topped the psychological 7,900. Investors got their confidence level back with a higher opening in Europe as the US Fed prepared for its latest policy meeting, brokers said. Bank of Japan is also due to meet this week.
Corporate earnings came as a sentiment booster as blue-chips' quarterly numbers gave market participants much to cheer about. Major Asian indices closed mixed tracking the overnight gains on the Wall Street, which made European shares rule strong in early trade.
The 30-share barometer stayed in the red in early part of the session, but staged a spectacular rally to erase all the losses after all-round buying. It ended up 328.37 points, or 1.28 percent, at 26,007.30 points--its highest closing since January 1.
The index has lost 201.45 points over the past two days. The broader NSE Nifty soared 107.60 points, or 1.37 percent, to close the day at 7,962.65 after shuttling between 7,822.55 and 7,973.05. The rupee, at 66.48 (intra-day), grew stronger against the dollar, which spurred the bulls.
The session belonged to Maruti Suzuki, Tata Steel, Cipla, BHEL, Lupin, Axis Bank, Tata Motors, M&M, ITC, HDFC Bank, SBI, HDFC Ltd, TCS, Asian Paints, Infosys and L&T that gained by up to 3.62 percent. In contrast, stocks of Adani Ports, Hero MotoCorp and Dr Reddy's lost. Of the 30-share Sensex, 27 climbed.
On the sectoral front, banking zoomed 2.02 percent, followed by metal 1.98 percent, realty 1.93 percent, auto index 1.57 percent, technology 1.16 percent and IT 1.13 percent. Broader markets such as the BSE mid-cap and small-cap rose 0.79 percent and 0.68 percent, respectively.
Cigarette stocks found themselves at the receiving end following reports that the government is working on a proposal to completely ban foreign direct investment (FDI) in the tobacco sector. Godfrey Phillips fell 17.54 percent to Rs 931.25.
Globally, most Asian markets closed mixed and European indices were up in early trade. Foreign portfolio investors (FPIs) bought shares worth Rs 222.34 crore yesterday, according to provisional data.

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