The benchmark BSE Sensex extended its winning run for the second day on Thursday surging almost 248 points to end at 28,446.12, a three-month high, amid sustained foreign capital inflows.
The Nifty made a smart rally reclaiming the 8,600-mark, mainly led by gains in banking and oil & gas stocks.
The sentiment perked up, with banking stocks catching investors' fancy after the government introduced a composite foreign investment cap by clubbing all forms of overseas investments to define sectoral limits, brokers said.
Besides, expectations that a fall in global oil prices following a deal between world powers and Iran will provide enough cushion to RBI to cut rates helped, they added.
A firming trend at other Asian markets after Greece Parliament approved the austerity plan was another positive for the trading sentiment here.
The country's trade deficit narrowing to USD 10.8 billion in June as against USD 11.7 billion in same month last year influenced sentiment too.
The 30-share barometer opened higher and touched the day's peak of 28,478.43 before closing higher by 247.83 points, or 0.88 per cent, at 28,446.12, its highest closing since April 16.
The Sensex has added 513.22 points in the past two sessions. The previous high was on April 16 when it closed at 28,666.04.
The broader Nifty wrested back the 8,600-mark by jumping 84.25 points, or 0.99 per cent, to close at 8,608.05. During the session, it shuttled between 8,613.20 and 8,542.90.
The BSE banking index notched up gains big-time, up 1.91 per cent, with Axis Bank advancing 4.14 per cent. SBI, ICICI Bank, HDFC and HDFC Bank too finished higher with gains up to 1.62 per cent.
Tata Steel ended the day 0.29 per cent higher following resolution of a major labour dispute at the UK arm of the company.
BHEL, Cipla, Dr Reddy, ITC and RIL were among other major Sensex gainers.
Out of the 30 Sensex stocks, 23 ended with gains while 7 others, led by Vedanta, lost.
Sectorally, consumer durable stayed ahead of the curve, jumping 2.06 per cent, followed by banking, power, healthcare, and oil & gas.
In keeping with the overall trend, broader market BSE mid-cap rose 1.33 per cent while BSE small-cap edged up by 0.75 per cent.
Furthermore, a firm trend in other Asian markets and higher opening in Europe following Greece's approval of new bailout terms cleared the overhang of economic outlook for the euro zone.
Foreigners bought shares worth Rs 407.69 crore on Wednesday, provisional data showed.