In a volatile session, the benchmark BSE Sensex on Wednesday rebounded by 373.62 points to 27,251.10 led by gains in banking and auto stocks after drop in inflation and industrial output data fuelled rate cut hopes.
The upside was also supported by gains related to inclusion of some stocks in MSCI India index.
MSCI Inc announced that eight companies including Bharti Infratel, Eicher Motors, Lupin and Bharat Forge will be added to the list.
At present, companies such as Infosys, HDFC, TCS, RIL, Sun Pharma and ITC are part of MSCI India index.
Sentiment was boosted after retail inflation cooled to a four-month low in April and industrial output growth slipped to a five-month low in March, increasing changes of an interest rate cut by the Reserve Bank at its next meeting.
In volatile movements, the 30-share Sensex opened firm and regained the crucial 27,000-mark to touch the day's high of 27,299.80 led by gains in rate-sensitive stocks.
On emergence of profit-booking it slipped into negative zone to touch day's low of 26,750.01.
Meanwhile, HSBC changed its stance on the country to "underweight", saying corporate earnings may remain muted, monsoon could be weak and odds are against rate cuts.
Discounting HSBC downgrade, Sensex staged a strong comeback towards the middle of session and settled the day 373.62 points or 1.39 per cent higher at 27,251.10.
The 50-share NSE Nifty also ended above the 8,200-level by surging 108.50 points or 1.34 per cent to 8,235.45 after shuttling between 8,254.95 and 8,089.80 intra-day.
The rise in the BSE barometer was supported by gains in Axis Bank that climbed 4.95 per cent, followed by ICICI Bank at 2.88% and SBI 2.52%.
Sector-wise, BSE bankex gained the most by rising 2.64%, followed by Capital Goods 1.81%, auto 1.72% and power 1.29%.
Of 30-Sensex shares, 22 stocks ended in the positive zone.
The broader markets also rose as the mid-cap and small-cap indices rose 1.59 and 0.92 per cent, respectively.
In Asian region, other markets ended mixed while European stocks were higher in their early trade as the sell-off in global bonds abated and growth picked up in the euro area, supported the sentiment here.