The 30-share barometer closed at 22,702.34 points, up by 358.89 points, or 1.61 percent.
The broad-based Nifty of National Stock Exchange crossed 6,800 level for the first time before settling at record 6,796.20 points, up by 101.15 points, or 1.51 percent, over the previous close.
The Sensex had its biggest single day gain after March 7 after IMF forecast a better growth rate for India in 2014. IMF said India's growth is expected to recover from 4.4 percent in 2013 to 5.4 percent in 2014.
A higher opening in Europe further supported the rally, brokers said.
Index-linked Sun Pharma was the star performer by zooming 6.60 percent as analysts upgraded the company after it agreed to acquire Ranbaxy Laboratories.
Gains in Reliance Industries, banking stocks like ICICI Bank, HDFC Bank and SBI also fuelled the rise in the barometer.
In 30-BSE index components, 26 stocks closed with gains.IT stocks, lead by Infosys and TCS, however, fell ahead of the financial results. Infosys dropped the most by 1.16 percent among index stocks.
Besides, Tata Motors, Axis Bank, HDFC, Hindalco, BHEL, Larsen and Toubro, Mahindra and Mahindra and Maruti Suzuki also posted gains.
The banking sector index gained the most by 3.45 percent to 14,798.80 followed by metal index by 2.26 percent to 10,363.34.
Healthcare index rose by 2.21 percent to 10,593.26 and Realty index by 1.85 percent to 1,533.57.


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