The BSE benchmark Sensex shot up 133 points to hit two-year high on increased buying in consumer durables and capital goods stocks amid persistent capital inflows after the US Congress approved a deal to avert "fiscal cliff".
After opening on a strong footing at 19,693.30 points, the benchmark continued its upward march to touch session's high of 19,756.68 before settling 133.43 points, or 0.68% higher at 19,714.24 points, its highest closing since January 6, 2011.
The 50-scrip NSE index Nifty, which breached the 6,000 mark during the session for the first time since January 2011, slipped back partially to close at 5,993.25 points, gaining 42.40 points, or 0.71%. It touched session's high of 6,006.05.
Overcoming Republican resistance, the US House of Representatives late Tuesday night passed the "fiscal cliff" bill by 257 to 167 votes, ending a dramatic New Year's Day showdown over income taxes and deep federal spending cuts.
Firm trends in European markets, which rallied to a 19-month high, also boosted the sentiment.
Analysts said besides positive cues from global markets, the country's manufacturing growth, which improved further in December, registering the fastest pace in six months generated buying activity here.
"Fuelling the rally in the market was expectation that RBI may cut interest rates," said Delhi-based broker Deepka Pahwa.
Overall, 23 of the 30 Sensex scrips registered gains, while 7 closed with losses.