Domestic stocks tracked a global rally Wednesday after Germany's top court backed the legality of the euro zone bailout funds, although with conditions.
German approval of the ESM was crucial to boost the euro zone's crisis fighting powers and a key requirement for the European Central Bank's new plan to buy the bonds of struggling euro members.
Many analysts expect the Fed will announce a new effort to revive the sluggish US economy on Thursday, which added to bullish sentiments on the Street.
Markets shrugged off weak July factory output data, which indicated that the broader economic activity remains weak.
The Sensex gained 147 points or 0.82 per cent to end at 18,000 while the 50-share Nifty advanced 41 points to 5,341.
Metal stocks led the gains, rising over 2 per cent on the BSE. Auto and capital goods stocks also saw buying interest, rising above 1 per cent.
On the Nifty, 35 of the 50 stocks traded higher. Gains were led by Tata Motors, which jumped 5.4 per cent. Shares in private steel maker JSPL, which have fallen over 20 per cent since the CAG report on coal was tabled in Parliament on August 17, rallied 3.9 per cent. State-run steel maker SAIL also closed with over 3 per cent gains on the Nifty.
Among the losers, engineering major Siemens India declined 2.7 per cent after its parent sold a 1.2 per cent stake in a deal that could raise up to $50 million. Drug maker Cipla and state-run power producer NTPC closed with over 2 per cent losses.
Among other stocks, domestic carrier SpiceJet soared 7 per cent after the Civil Aviation Minister said he was hopeful of foreign direct investment being allowed in India's airlines. Under the current rules, foreign airlines are barred from buying stakes in domestic carriers, although foreign investors are allowed to hold a cumulative 49 percent.
SpiceJet was the top traded stock on the BSE 500. Debt laden Kingfisher Airlines gained nearly 8 per cent.
The market breadth was positive with over 54 per cent stocks rising on the broader BSE 500.
(With inputs from Thomson Reuters)