The 30-share Sensex resumed lower at 18,695.34 but recovered afterwards and further gained momentum in the second half of trade to settle at 19,016.46 -- a gain of 285.30 points or 1.52 per cent. This level was last seen on April 2.
Similarly, the National Stock Exchange Nifty rose by 94.40 points, or 1.66 per cent, to end at 5,783.10 led by consumer durable, capital goods and banking sector shares.
With over 1,300 stocks rising, investor wealth surged by Rs 70,000 crore as m-cap stood at Rs 65 lakh crore mark.
With a view to boost exports, the government has announced several measures in foreign trade policy including extension of the popular Export Promotion Capital Goods scheme to all sectors and sops for Special Economic Zones (SEZs).
Interest-rates related stocks like HDFC, ICICI Bank, HDFC Bank, SBI, Tata Motors, M&M attracted good buying support on hopes of rate cut by RBI on May 3. L&T, Bharti Airtel, RIL, ITC, ONGC also were in demand.
Buying was seen across the board as 12 out 13 sectoral indices closed with gains of up to 2.78 per cent. Only BSE-IT index finished lower.
"Markets are running ahead full steam. And what is clearly supporting the rise is the expectation of rate cut, fall in prices of gold and crude oil which is expected to bring down the CAD. On the other hand, there is no news on political instability...sentiments are extremely bullish," said Nagji K Rita, CMD, Inventure Growth and Securities.
Brent crude oil futures falling further to USD 98 level in global markets reinforced expectations that declining commodity prices will drive down inflation, traders said.
Sustained capital inflows from foreign funds also boosted sentiments amid firming global trend as Italian and Spanish bonds gained.
Reflecting some recovery in the global markets, India's exports grew for the third month in a row, rising by 6.97 per cent in March though on annual basis it declined 1.76 per cent to USD 300.6 billion in 2012-13.
Globally, Asian markets closed mixed with downward bias on fall in commodity prices and weak US corporate results. Key benchmark indices from Hong Kong, Japan, South Korea and Taiwan closed down while China and Singapore finished up.
However, European markets were trading higher in early trade. France's CAC was up by 0.91 per cent, Germany's DAX by 0.58 per cent and the UK's FTSE by 0.25 per cent.
Turning back to the domestic market, 26 scrips out of the 30-share Sensex closed higher with major gainers being Bharti Airtel (4.65 pc), Tata Motors (3.98 pc), L&T (3.61 pc), HDFC (3.34 pc), Gail India (3.20 pc), M&M (2.72 pc), ICICIC Bank (2.30 pc), SBI (2.21 pc) and Maruti Suzuki (2.04 pc).
HDFC Bank (1.92 pc), ONGC (1.73 pc), BHEL (1.59 pc), NTPC (1.14 pc) and Reliance Industries (0.99 pc) also notche dup smart gains.
However, Wipro dropped by 1.68 per cent ahead of results tomorrow and TCS weakened by 0.58 per cent on profit-selling.
On market outlook, Rakesh Goyal, Senior Vice President, Bonanza Portfolio said: "Fall in gold prices and oil along with fair valuations seen at lower levels ahd led to this strong rally. However, since Nifty had been in downtrend for quite some time, profit-booking is likely near 5800-mark."
Among the sectoral indices, S&P BSE-CD rose by 2.78 per cent, followed by S&P BSE-CG (2.63 pc), S&P BSE-Bankex (2.49 pc), S&P Auto (2.26 pc), S&P BSE-Realty (1.86 pc), S&P BSE-Oil&Gas (1.34 pc), S&P BSE-PSU (1.23 pc) and S&P BSE-Power (1.00 pc).
The total market breadth turned positive as 1,319 stocks finished with gains while 1,047 stocks ended with losses. The total turnover declined to Rs 2,143.94 crs from Rs 2,277.01 crore yesterday.