The benchmark BSE Sensex jumped by 402 points on Monday to close at over two-week high of 27,507.30, led by gains in banking and auto stocks, on hopes of RBI rate cut ahead of inflation and IIP data release.
The broader 50-issue NSE Nifty too regained the crucial 8,300-level.
Government's move to mollify overseas investor's' taxation worries and firming trend in overseas markets supported investor sentiment, traders said.
The BSE 30-share Sensex resumed on a positive note and touched an intra-day high of 27,544.24 before settling 401.91 points or 1.48% higher at 27,507.30.
Of the 30 Sensex stocks, 26 ended with gains.
The index had gained 506.28 points on Friday after Finance Minister Arun Jaitley refereed the MAT issue to a high-level committee.
Similarly, the broader 50-issue NSE Nifty regained the 8,300-mark to hit session's high of 8,332.75 and concluded 133.75 points or 1.63% higher at 8,325.25.
On macroeconomic front, data on inflation based on consumer price index (CPI) for April and industrial production (IIP) data for March will be released on Tuesday.
"Markets bounced back strongly largely on the back of positive domestic as well as global cues," said Manoj Choraria, a Delhi-based NSE stock broker.
On Sensex, State Bank of India was the biggest gainer with a rise of 5.44%, followed by Vedanta 5.34%, Hero MotoCorp 3.59% and HDFC 3.16%.
Auto stocks rose after a data showed car sales grew 18.14 per cent to 1,59548 units in April.
Among the BSE sectoral index, metal rose the most by surging 2.65 per cent, followed by auto 2.52%, metal 2.52%, bankex 2.40%, consumer durables 2.27%, healthcare 1.69%, power 1.56%, IT 1.34% and oil&gas 1.25%.
In line with overall bullish trend, midcap index rose 2.13%, while smallcap gained 1.28%.