Ignoring weak global cues, the benchmark BSE Sensex on Tuesday rose by 100 points to 26,686.51 on fag-end buying in banks and auto stocks after CBDT said it won't use coercive methods to recover MAT dues from FIIs.
Above normal progress in monsoon till now and narrowing of trade deficit to a three month low in May also boosted market sentiment, traders said.
"India's trade deficit narrowed to a three-month low in May, helped by lower gold imports, bolstering the outlook for its current account balance; thereby aiding the sentiment," said Gaurav Jain, director at Hem Securities.
In a breather for investors, CBDT On Tuesday said taxmen will not resort to coercive methods to recover dues towards Minimum Alternate Tax (MAT) on capital gains made by FIIs and would wait for the Supreme Court order on the issue.
"Assessing Officers (AO) can not redo their order (on levying of MAT on FIIs), but if order is in appeal, then we can certainly tell our assessing officer please don't take it further...," Central Board of Direct Taxes (CBDT) chairperson Anita Kapur told reporters.
The 30-share BSE index in late morning trade fell over 200 points to the day's low of 26,379.93 points as participants booked profits after two straight sessions of gains.
After mid-session, the index rebounded on buying in select key counters to hit a high of 26,731.35 and finally settled with a gain of 99.96 points or 0.38% at 26,686.51.
The 50-issue NSE Nifty moved up by 33.40 points or 0.42% to end at 8,047.30. During the day it had dipped below the 8,000-mark to touch a low of 7,952.35.
Sentiments turned positive following revival of buying by participants after trade deficit narrowed to USD 10.4 billion in May against USD 11.2 billion in the same month a year ago, equity brokers said.
Globally, Asian markets retreated for the second straight session, tracking a global sell-off as Greece struggles to find a compromise with its creditors.
However, some wary operators preferred to cover their short positions ahead of the two-day monetary policy meet of the US Federal Reserve's monetary committee starting on Tuesday.
"Investors are vary of the probable Greek default after both Greece and its creditors strengthened their stance," said Rakesh Goyal, senior vice president of Bonanza Portfolio.