Mumbai: Benchmark Sensex reversed a three-session slide to end at 33,970 on Thursday after the government moved forward on its bank recapitalisation programme.
Investors also took heart from upbeat macro indicators and firm global cues, brokers said.
The finance ministry on Thursday sought Parliament's nod for extra expenditure of Rs 80,000 crore towards recapitalisation of bad loans-saddled public sector banks through bonds.
State-run lenders made handsome gains in on Thursday's session. Index heavyweight SBI rose 1.72 percent, while UCO Bank, IDBI, Punjab National Bank, Bank of India, Bank of Baroda and Oriental Bank of Commerce, among others, rallied by up to 8.50 percent.
Market sentiment was bolstered after a monthly survey showed the Indian services sector returned to marginal growth in December as new orders broadly stabilised.
The BSE benchmark Sensex opened higher at 33,912.49 and hovered in a range of 33,995.40 to 33,802.13 before finishing at 33,969.64, showing a gain of 176.26 points or 0.52 percent.
The gauge had lost 263.45 points in the previous three sessions.
The NSE 50-share Nifty also closed higher by 61.60 points, or 0.59 percent, at 10,504.80 after shuttling between 10,513 and 10,441.45.
"Positive global cues and improvement in services PMI data for December helped the market move out of the subdued phase of trading.
"Global growth expectation and continued buying in metal stocks raised the market sentiment, while PSU banks outperformed on account of finalisation of recapitalisation," said Vinod Nair, Head of Research, Geojit Financial Services.
Meanwhile, foreign portfolio investors (FPIs) bought shares worth Rs 96.31 crore, while domestic institutional investors (DIIs) were net sellers to the tune of Rs 269.20 crore on Wednesday, provisional data showed.
Asian bourses displayed a firm trend, led by Japan which began the first trading of 2018 on a strong footing. European markets opened higher.
Back home, Tata Steel was the biggest gainer in the Sensex kitty, rising 3.74 percent, followed by Dr Reddy's, which advanced 3.14 percent.
Other gainers were L&T, ONGC, Asian Paints, Sun Pharma, Coal India, SBI, IndusInd Bank, Bharti Airtel, TCS, Bajaj Auto, Reliance Industries, Yes Bank, Adani Ports, HDFC Ltd and HDFC Bank, rising by up to 3.08 percent.
Among the sectoral indices, metal climbed 2.77 percent, consumer durables 2.53 percent, capital goods 2.11 percent, PSU 1.55 percent, infrastructure 1.03 percent, healthcare 0.99 percent, oil and gas 0.80 percent, bankex 0.51 percent and power 0.33 percent.
The broader markets continued to outperform the benchmark. The BSE small-cap and mid-cap indices rose by 0.88 percent and 0.71 percent, respectively.
Globally, Asian stocks ended higher as soaring oil prices helped energy firms post bumper gains, following more records on Wall Street.
Japan's Nikkei rose 3.26 percent, Hong Kong's Hang Seng gained 0.57 percent and Shanghai Composite Index was up 0.49 percent. In Europe, Frankfurt's DAX rose 0.94 percent, while Paris gained 0.85 percent. London FTSE was up 0.15 percent.
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Updated Date: Jan 04, 2018 19:03:49 IST