The BSE Sensex rose 2.6 percent on Friday fueled by a global rally in risk assets after European leaders agreed on decisive action to lower the borrowing costs of Italy and Spain and create a single supervisory body for euro banks.
Local stocks received a further boost on Morgan Stanley upgrading Indian equities and a rally in the rupee.
Banks led gains with ICICI Bank up 5 percent, HDFC Bank rose 2.74 percent while State Bank of India was up 2.9 percent.
Broad-based buying helped gains in other blue chip shares: Reliance Industries was up 2.5 percent and cigarette major ITC added 3 percent.
The 30 share BSE index closed 2.6 percent higher at 17,429.98 points, while the 50-share Nifty added 2.52 percent to close at 5,278.90 points.