The 30-share BSE index, which had gained 33.17 points in the previous session, advanced by 153.95 points, or 0.57 percent, to close at 27,395.73 points. It touched a day's high of 27,507.25 points at the outset but profit-taking towards middle of session made it touch a low of 27,266.49.
The 50-scrip National Stock Exchange index Nifty rose by 45.60 points, or 0.56 per cent, to close at 8,246.30 points.
India's economic growth is expected to pick up in the current fiscal and will be "much better" in 2015-16, Finance Minister Arun Jaitley today said.
Brokers said market sentiment also improved after data showed that foreign funds -- which had been net sellers on the Indian markets for 12 straight sessions - turned buyers.
Metal stocks gained on buzz that government will take the ordinance route soon to pave the way for auction of iron ore and other minerals as the proposed amendments to the MMRDA Act have been pending since long.
A firming trend at other Asian markets on reports that China had unveiled fresh measures to boost the economy and a higher closing on the US markets on Friday also influenced the market sentiment to some extent, brokers added.
"Firm global cues and ...continuous inflow from the FIIs, added to the positivity," said Jayant Manglik, President - Retail distribution, Religare Securities.
Twenty five Sensex components, led by Sesa Sterlite, Hindalco, Coal India, Tata Steel, Tata Motors, Hero MotoCorp, Sun Pharma and BHEL helped the benchmark end in positive terrain. However, five stocks including Bharti Airtel, ICICI Bank, M&M, Axis Bank and SBI closed with losses.
Sectorally, the BSE Metal index gained the most rising by 2.36 percent, followed by the auto index that rose by 1.50 percent. Consumer Durables index rose by 1.02 percent, Healthcare Index by 0.87 percent, FMCG index by 0.77 percent and Power index by 0.76 per cent, Oil & Gas index by 0.69 percent and IT index by 0.68 percent.
Buying activity also gathered momentum in the midcap and smallcap stocks, lifting indices by up to 0.87 per cent.