Key equity indices jumped amid bets the government and the Reserve Bank of India will bury their differences at a crucial central bank board meeting on Monday.
Subdued global oil prices, and foreign fund inflows amid a stable domestic currency also burnished the appeal of stocks.
The government has been demanding that the RBI make liquidity available, especially to the shadow banks after a series of defaults by the Infrastructure Leasing & Financial Services (IL&FS) triggered a scare and precipitated a credit crunch.
The Centre has also reportedly demanded that the RBI hand over a significant chunk of its reserves, which was subsequently denied by the Union Finance Ministry as "misinformed speculation".
RBI Deputy Governor Viral Acharya had warned of economic consequences if the central bank's autonomy was encroached upon.
Interest-rate sensitive stocks like banking, automobile and capital goods rose, while the oil and gas sector came under pressure.
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The S&P BSE Sensex settled up 317.72 points or 0.90 per cent at 35,774.88, from its previous close of 35,457.16 points.
NSE's Nifty50 gained 81.20 points or 0.76 per cent to finish at 10,763.40.
--IANS
ravi-rv/shs