BSE benchmark Sensex zoomed over 650 points while the NSE Nifty reclaimed the 10,800 mark on Thursday on value buying in banking, auto, pharma, IT and FMCG stocks ahead of the Budget.
Trading sentiment received a boost as global markets rallied following US Federal Reserve's dovish policy stance.
Heavy short-covering on expiry of January series futures and options (F&O) contracts too buoyed the benchmarks, analysts said.
The 30-share Sensex rallied 665.44 points, or 1.87 per cent, to close at 36,256.69. The broader Nifty soared 179.15 points, or 1.68 per cent, to 10,830.95.
All BSE sectoral indices finished in the green, led by IT, energy and banking.
According to Joseph Thomas, Head Research, Emkay Wealth Management, the market was well bid across segments and sectors throughout the day.
"It was mainly propelled by two important factors. The first being the moderation in the monetary policy stance of the Fed, as the key Fed funds rate was left unchanged. The status quo, in the midst of looming fears over an impending economic slowdown, and also as the probability of future hikes may be far and few, catapulted the markets to higher levels.
"The second one being high expectations from the interim Budget by way of measures that would alleviate the agrarian distress and boost the employment and consumption levels," he said.
On a net basis, foreign portfolio investors (FPIs) bought shares worth a net of Rs 130.25 crore Wednesday, and domestic institutional investors (DIIs) were net buyers to the tune of Rs 502.26 crore, provisional data available with the BSE showed.
In the Sensex pack, Axis Bank, Tata Motors, Infosys, Kotak Bank, HDFC Bank, RIL, Bajaj Auto, SBI, HUL, Tata Steel, Vedanta, HFDC, TCS, ITC and Sun Pharma jumped up to 4.64 per cent.
On the other hand, Yes Bank, HCL Tech, Bajaj Finance, ICICI Bank, and Coal India fell up to 2.56 per cent.
Global investors were also optimistic about the ongoing two-day high-level talks between the US and China aimed at settling their six-month trade war.
Elsewhere in Asia, Hong Kong's Hang Seng soared 1.08 per cent, Japan's Nikkei rallied 1.06 per cent and Shanghai Composite Index rose 0.35 per cent. Korea's Kospi slipped 0.06 per cent.
In the Eurozone, Frankfurt's DAX gained 0.38 per cent, Paris CAC 40 was up 0.42 per cent and London's FTSE jumped 0.53 per cent in late morning deals.
The rupee, meanwhile, depreciated marginally against US dollar to 71.15.
The benchmark Brent crude futures were trading slightly higher at USD 61.55 per barrel.