Stock brokers said investors were also optimistic that the government will be able to push through economic reforms.
The Sensex soared by 305.07 points, or 1.65 per cent, to 18,842.08, its biggest rally after September 21.
Reliance Industries shot up by 1.66 per cent to Rs 786.20 and software exporter Infosys by 2.17 per cent to Rs 2,469.15.
Export-driven technology shares such as Infosys rose, tracking the recent weakness in the rupee and better trend in its major markets like the U S and Europe.
In 30-BSE index components, 28 stocks were in positive zone led by realty, consumer durables, FMCG and banking sectors.
On similar lines, the broad-based National Stock Exchange index Nifty shot up by 91.55 points, or 1.62 per cent to 5,727.45.
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Buying activity picked up as speculators indulged in covering their short positions created in recent past before the monthly settlement in the derivatives segment on Thursday. The market will be closed tomorrow for 'Gurunanak Jayanti.'
Moody's said India rating outlook is stable because of the country's strong economic growth along with high savings and investment rates.
"India's Baa3 rating and stable outlook are supported by credit strengths which include a large, diverse economy, strong GDP growth and savings, and investment rates that exceed emerging market averages," the global rating agency said in its 'Credit Analysis on India' report.
Brokers said trading sentiment improved on reports that the ruling UPA government may be able to win the voting test on economic reforms, including foreign direct investment in retail sector, in Parliament.