The gains were led by Reliance Industries and FMCG majors ITC and HUL.
The 30-share Sensex ended up 146 points at 26,833 and the 50-share Nifty closed 44 points higher at 8,092.
"Buying spree continued as the market was oversold due to the correction in the previous weeks while encouraging macro data also helped investor sentiment.
FMCG shares rallied as near-term concerns regarding the monsoon eased," said Alex Mathew, Head of Research, Geojit BNP Paribas Financial Services.
Further, the two-day FOMC meet which ends later today could signal the US Fed's stance on interest rates going forward.
Rupee
The Indian currency firmed up against the US dollar on the back of selling of the US dollars by banks and exporters while gains in domestic equities also aided sentiment.
The rupee was trading higher at 64.13 compared to the previous close of 64.24.
Sectors and stocks
BSE FMCG and Healthcare indices were the top sectoral gainers along with Capital Goods among others.
Steel stocks gained amid media reports that the government has raised import duty on long steel products to 7.5% from 5.5% and flat steel products to 10% from 7.5%.
Among steel stocks, Tata Steel gained 3.6%, SAIL gained 1.8%, JSW Steel rose 3.3%, Jindal Steel ended up 1%.
In the mid-cap space, Bhushan Steel was up 3.6% and Uttam Galva Steels surged 4.5% each while Kalyani Steel gained 6%.
Reliance Industries ended up 3%.
The company plans to gradually reopen all its 1,400 fuel retail outlets by next March. It has nearly 400 filling stations working now.
FMCG shares firmed up on hopes that the monsoon which has been 13% above normal so far pan-India would boost the rural economy and help volume growth.
Hindustan Unilever ended up 3.4% and ITC gained nearly 1%. Wipro gained 1.3% on plans to set up facility in Odisha that would house 28,000 staff in Bhubaneswar.
TCS pared early gains and ended with marginal gains.
The IT major is one of the frontrunners in the race to win Swedish truckmaker AB Volvo's IT outsourcing contract, worth about $500 million.
Other Sensex gainers include, L&T, Cipla, M&M among others.
Meanwhile, Vedanta was the top Sensex loser down over 2% on reports that LIC which holds 9.06% stake in Cairn India, is seeking a better offer, including higher dividend on the redeemable preference shares that the metal producer plans to offer Cairn shareholders as part of its planned merger. Cairn India was down nearly 1%.
Smart movers
Opto Circuits (India) ended up 3% after the company in a release said that its GDR Committee approved opening of issue of GDRs of the company. Gayatri Projects gained 7% after the company announced that it has issued equity shares in lieu of the unsecured loans provided by them and also issued equity shares to foreign institutional investors.
Jubilant Life Sciences ended up 2.3% after the company in release said it has increased price of Vitamin B3 (Niacin & Niacinamide) by 10% with immediate effect.
Ramky Infrastructure jumped 20% after the company said six lenders from a consortium of nine approved the company's debt restructuring plan.
In the broader market, the BSE Mid-cap index gained 1.4% and Small-cap index ended up 1.3%.
Market breadth was strong with 1,716 gainers and 940 losers on the BSE.
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