The Sensex, which had gained 98 points in the previous session, spurted by 179.68 points, or 0.90 per cent to end at 20,128.41, its highest level since May 30.
On similar lines, the broad-based National Stock Exchange index Nifty rose by 64.74 points, or 1.08 per cent to 6,038.05 led by realty, banking and consumer durables shares.
Also, SX40 index, the flagship index of MCX-SX, gained 125.19 points, or 1.05 per cent, to close at 12,044.15.
"Banks are showing signs of short term reversal after it dived for two straight sessions," said Milan Bavishi, Head Research, Inventure Growth and Securities.
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Experts said a firming Asian trend and higher opening in Europe after US Federal Reserve chief Ben Bernanke stated the bank had no plan to wind down its stimulus until the economy was back on track, further influenced sentiments here.
Reliance Industries inched up to Rs 917.05.
In 30-share Sensex, 23 stocks closed with gains while seven ended lower.
Sectorally, BSE Realty sector index gained the most (2.53 per cent), followed by BSE Banking index (2.04 per cent) and BSE Consumer Durables (1.72 per cent).
Global financial services firm Macquarie today joined clutch of banks that lowered India's growth forecast for this fiscal. However, markets ignored the lower estimates.