Finance minister P Chidambaram's promise to shortly reveal a path of fiscal consolidation to regain investor confidence kept the market tempo upbeat for the second week in a row.
Both the key indices, Sensex and Nifty, rose by over 2% despite steep fall in heavyweights like SBI and Bharti Airtel amid unexpected decline in industrial output.
Sustained buying by foreign funds also was the major factor for the market to remain firm.
Investors were enthused by Chidambaram's comments that were made before markets closed on Monday to unveiled a broad roadmap to regain investor confidence and the government will work with the RBI to moderate inflation.
Brokers also said trading mood improved on global cues influenced by higher-than-forecast US jobs data at 163,000 for July that came out after Indian markets closed on Aug 3.
The BSE 30-share gauge resumed the week higher and improved further to an intra-trade at four-and-a-half-month high of 17,726.64 on Wednesday, level not seen since March 16, 2012 when it had logged a high of 17,871.00.
However, it could not sustain the gains due to a decline in country's industrial production announced on Thursday and steep fall in telecom giant Bharti Airtel on dismal Q1 performance and also in SBI due to rise in non-performing assets (NPAs) respectively.
The Sensex later ended at 17,557.74, a net rise of 359.81 points, or 2.09%. Last week, it had spurted by 358.74 points, or 2.13%.
The broad-based NSE 50-issue Nifty also flared up by 104.70 points, or 2.01%, to end the week at 5,320.40.