After losing about 350 points in past two sessions, the BSE benchmark index opened 88 points up on positive trends.
Within half hour of trading, the Sensex rose to day's high of 18,885.84, up nearly 177 points, on the back of buying in banks amid a stronger rupee.
Sustained FII inflows drove the upsurge, said dealers.
After a mild round of profit-booking and mixed trading in European stocks, the 30-share Sensex closed at 18,793.36, up 84.38 points or 0.45 per cent.
"While buying in IT and FMCG sector supported the upsides. Lower opening of European indices as well as weaker US Futures also muted the upward movement," said Nidhi Sarswat, Senior Research Analyst, Bonanza Portfolio.
Overall, 19 stocks led by L&T (2.06 pc), Infosys (1.85 pc), Sun Pharma (1.62 pc), Sterlite (1.59 pc) and HUL (1.46 pc) helped the index rise. However, Gail (2.77 pc), Bharti Airtel (1.83 pc) and Hindalco (1.62 pc) closed lower.
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Stocks of consumer durables, healthcare, IT and FMCG closed with gains while oil&gas were among the major losers.
In New Delhi, describing India's recent reforms initiatives as "very promising", US Treasury Secretary Timothy Geithner today said it would have positive outcomes for the Indian economy.
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The 50-share National Stock Exchange index Nifty closed 28.60 points up, or 0.50 per cent, at 5,704.60.
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