The 30-share index, which had lost 278 points in the last two trading sessions, shot up by 199.37 points, or 1.20 per cent to 16,839.19 points. It touched the day's high of 16,975.03.
The wide-based 50-stock National Stock Exchange index Nifty shot up by 56.85 points, or 1.13 per cent, to 5,099.85, after climbing to 5,149.95 during the session.
Trading sentiment bolstered after leading banks like ICICI Bank posted better than expected earnings, brokers said.
The market further received support from firming trend in Asia and Europe on speculation the central banks from Europe and Japan will take steps to contain eurozone debt crisis.
Metal sector stocks led by Tata Steel and Sterlite Industries rose as base metal prices surged in global markets.
Among the 30 Sensex scrips, 24 stocks closed with gains with metal, IT and auto indices recording handsome gains.
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Reliance Industries rose by 1.42 per cent to Rs 720.40 and Infosys by 1.12 per cent to Rs 2,148.85. Tata Consultancy Services rose by 1.92 per cent to Rs 1,225.75. The three stocks carry nearly 20 per cent weightage on the Sensex.
The major gainers were HDFC Bank, ITC, Mahindra and Mahindra, Maruti Suzuki, Sun Pharma, Tata Motors, Tata Powers, Bharti Airtel, Coal India, HDFC Ltd and Wipro.
ICICI Bank rose by 2.35 per cent to Rs 928.20 after its posted nearly 25 per cent growth in consolidated profit. Another major private lender HDFC Bank gained over 3 per cent.
However, public sector major State Bank of India fell by 3.77 per cent to Rs 1,941.20 amid concerns over asset quality of state-run banks.