The BSE benchmark index, which had lost 129 points yesterday, was under some pressure in early trade after Asian markets slumped on disappointing Chinese imports data.
However, sentiments quickly changed after reports of EU leader ratifying the Spanish deal started trickling in. Leaders in Brussels announced steps, including an extra year until 2014 for Spain to achieve its deficit reduction targets, which drove stocks in the UK, France and Germany higher.
With 28 scrips of the 30-share index ending higher, the index closed with a gain of 226.37 points. Today's level is highest for Sensex after it closed at 17,675.85 on March 15.
Similarly, the 50-share NSE Nifty shot up by 70.20 points, or 1.33 per cent to 5,345.35.
"The news from Euro-zone was positive for equities. Bank clearly led the rise. Rupee also recovered sharply" said Milan Bavishi, Head Research, Inventure Growth and Securities.
Snapping a four-day losing string, the rupee was last trading at 55.50 against dollar compared to yesterday's close of 55.92.
Brokers said auto stocks, including Maruti and Tata Motors, jumped after data showed car sales data in the country grew 8.28 per in June amid tough market conditions.
Expectations of good results from banks and financial sector also improved the market mood with HDFC Bank, ICICI bank and HDFC gaining in the 1-2 per cent range, traders said.
A subdued trend in crude oil, which fell below USD 99 a barrel, aided sentiments, experts said.
