The 30-share Sensex of the Bombay Stock Exchange ended up 51 points at 19,765 and the 50-share Nifty ended up 16 points at 6,010.
The Nifty ended above 6,000 level for the first time since January 6, 2011 when the benchmark index had ended at 6,048.25. The Sensex had ended at 19,691.81 on January 6, 2011.
Global risk appetite was firm after US lawmakers succeeded in averting 'fiscal cliff' that could have pushed world's biggest economy into recession.
Mirroring the optimism, Asian stocks also ended on a positive note, pushing a regional equities index to its highest level in 17 months, after an expansion of US manufacturing and China's services industries fueled optimism in the global economic recovery.
Hong Kong's Hang Seng gained 0.14% to 23,344, Taiwan's Weighted index rose 0.7% to 7,837, Singapore's Straits Times was up 0.32% to 3,212 in closing trades.
Equity markets in Japan and mainland China were closed today for public holidays.
Meanwhile, European markets traded mixed. France's CAC dropped 0.7% to 3,717.18, Germany's DAX traded down 0.2% to 7,761 while UK's FTSEfell 0.06% to 6,023.
On the domestic front, technology, IT, oil & gas, metal, real-esate, healthcare, led gains while FMCG, power, capital goods, banks and consumer durables were among laggards on BSE.
Among key Sensex stocks, Dr Reddy's gained 2.3%, Bharti Airtel and SBI rose 2% and 1%, Bajaj Auto was up 0.5% , Tata Steel rose 1% while Reliance Industries jumped 1.5%
The laggards included Tata Power dropped 1.5%, Sun Pharma and Cipla declined nearly 1%, Hindalco and Sterlite fell 0.5% each while Maruti Suzuki and Mahindra & Mahindra declined 0.7% on BSE.
Software-makers such as Infosys, TCS, Wipro posted gains of nearly 1% on expectations of better third quarter results, Infosys will kick-start the earning season on Jan 11.
The other notable movers include,Hyderabad-based drug firm Dr Reddy's Laboratories Limited (DRL) has launched Finasteride Tablets (1 mg), a bio-equivalent generic version of Propecia (Finasteride) tablets in the US market on January 02.
State Bank of India ended higher by 1% at Rs 2,470, also its 52-week high, extending its about 3% rise in past four trading sessions on the National Stock Exchange.
Ramky Infrastructure soared 11% to Rs 125, extending its past three-day's rally after the company said that it has achieved financial closure for its Agra Etawah Road Tollway Project to be developed in Uttar Pradesh.
Jai Corp rallied 15% to Rs 81.80 on back of heavy volumes after the Maharashtra cabinet cleared the new industrial policy, which allows special economic zone (SEZ) developers to utilize 40% of the land in their possession as an integrated industrial township project.
The broader markets outperformed benchmark indices with mid-caps and small-caps gaining nearly 1% on BSE.
The market breadth ended positive as 1,711 stocks gained compared to 1,256 declines on BSE.
ConocoPhillips in talks to pick stake in ONGC blocks
Gujarat's growth model better than other states: CLSA
Assets case: Court extends Jagan's judicial remand
IMAGES: World's top stock exchanges by IPO value
Agarkar happy with DD team composition