Logging second straight weekly gain, the benchmark BSE Sensex on Friday rose 118 points to 27,324 on forecast of a timely monsoon, while finance minister saying economy was in a recovery mode with inflation and fiscal deficit under control too boosted sentiment.
Besides, slowdown in foreign funds outflows amid firm European shares also buoyed market, traders said.
Finance minister Arun Jaitley had on Thursday said the economy was in a recovery mode with inflation and fiscal deficit under control.
"Sentiments turned upbeat as investors remained hopeful of RBI slashing the key policy rate in the upcoming monetary policy review," said Jayant Manglik, president of retail distribution at Religare Securities.
Inflation cooling to a four-month low in April and industrial output growth at a five-month low in March is stocking hopes of an interest rate cut by the Reserve Bank.
In volatile movements, the 30-share Sensex opened firm at 27,233.90 and made further headway to touch the day's high of 27,379.57 led by gains in rate-sensitive stocks.
However, on emergence of profit-booking, it briefly slipped into the negative zone to touch day's low of 27,159.76, but staged a strong comeback to close 117.94 points or 0.43% higher at 27,324.
The index had shed 45.04 points in Thursday's trade. The 50-share NSE Nifty also ended 38.15 points or 0.46% higher at 8,262.35 after moving between 8,279.20 and 8,212.20 intra-day.
"Today's lacklustre performance in equity indices suggest that traders are not overjoyed as they estimate that the rate cut prospects may be tempered by monsoon expectations," said Anand James, Co head technical research desk, Geojit BNP Paribas.
The IMD has forecasted that monsoon may hit the Kerala coast on May 30 even as the country stares at the possibility of below normal rains for a second consecutive year.
The rise in the BSE barometer was supported by gains in state-run SBI that climbed 2.39%, followed by HDFC 1.80% and Axis Bank 0.80%.
Bharti Airtel, M&M, Infosys, ONGC, Maruti Suzuki, L&T, Bajaj Auto and Tata Motors were among other gainers. The broader markets also rose as the small-cap and mid-cap indices rose 0.62 and 0.35%, respectively.