The Bombay Stock Exchange gained from positive signals from the European Union (EU) and the Indian government's efforts to bring clarity in the General Anti-Avoidance Rules with a 439 point (2.6 per cent) jump in the Sensex.
The rupee also gained with foreign institutional investors pumping in $500 million into Indian equities in just one day.
The BSE Sensex was up 2.6 per cent at 17,430 while the NSE Nifty ended up 130 points (2.5 per cent) at 5,279 points.
The rupee opened 19 paise higher at 56.61 on the inter-bank market today and closed higher at 55.67 a dollar, sharply up from Thursday's close of 56.80 a dollar. The rupee continued to gain after touching an intra-day low of 56.66.
Euro zone leaders on Friday agreed to let their rescue fund inject aid directly into stricken banks from next year and intervene on the bond markets to support troubled member states, in a bid to avoid a break up of the monetary union.
They also pledged to create a single banking supervisor for euro zone banks, based around the European Central Bank (ECB), taking the first step towards a financial union in an effort to help struggling Spain and Italy.