The 30-share Sensex ended at 16,454 up 434 points or 2.7% and the 50-share Nifty ended at 4,997 up 134 points or 2.75%.
The Sensex and the Nifty reached an intra-day high of 16,495 levels and 5,010 mark, respectively.
Japan's Nikkei average rose on Wednesday, recovering further from Monday's six-month closing low as investors looked to policy makers to counter the euro zone crisis, and Australian and US data offered some positive news.
Hang Seng, Kospi, Taiwan and Strait Times ended 1-2% higher.
European shares and the euro gained on Wednesday as the acute financial problems in Spain and recent data confirming a widespread economic slowdown across Europe fuelled hopes that the region's central bank would respond with stimulus measures.
CAC, DAX and FTSE have gained between 1-2%.
Back home, all the sectoral indices ended in positive territory.
BSE Auto and Capital Goods indices surged nearly 4% followed by sectors like Power, Banks, FMCG, Metal, Realty, Consumer Durable, PSU, Oil & Gas and IT, all zooming between 2-3.5%.
Interest rate sensitive counters were witnessing strong buying demand on expectations that the RBI will cut interest rates at mid-quarter monetary policy review on June 18 to support the slowing economy.
From the Auto pack, Tata Motors topped the buyers list in Sensex 30 stocks, up nearly 6% at Rs 234.
Hero MotoCorp surged 4%, extending its past two days 2.4% gain on reports that the company proposed to invest Rs 2,575 crore to set up two new plants in Rajasthan and Gujarat and an integrated research and development (R&D) centre.
The expansion plans would boost its annual production capacity to nine million from the current seven million, according to the report.
M&M gained over 3%. According to Reuters report, CLSA upgraded Mahindra and Mahindra to "outperform" from "underperform" and raises its 12-month target price to Rs 770 from Rs 720.
Maruti Suzuki gained by nearly 3%.
In the Capital Goods space, BHEL and L&T surged between 2-5%.
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