The BSE Sensex rose more than 2.5 percent on Monday, joining a rebound across Asia after U.S. Federal Reserve Chairman Ben Bernanke left the door open for further action to stimulate the world's biggest economy.
Software services companies whose biggest market is the United States and financial stocks led the gains, after three straight sessions of losses.
"It is a mix of buying and short-covering. If there is follow-up buying later and if Europe opens higher, we should be able to sustain the gains today," said Neeraj Dewan, director at Quantum Securities.
By 11:25 a.m. (0555 GMT), the 30-share BSE index was up 2.6 percent at 16,263.62 points, with 27 its components trading higher. It had risen as much as 2.7 percent earlier.
"The markets looked to be oversold. Some trigger was needed and that came over the weekend," Dewan said, referring to an anti-graft protest that ended on Sunday.
He said the end of the domestic agitation could help ease the uncertainty for the government.
Export-powered Tata Consultancy Services rose 4.8 percent, while smaller rivals Infosys and Wipro gained 3.5 percent and 3.8 percent respectively.
Banking stocks, which have seen a sharp selloff in recent weeks over worries about credit demand amidst rising interest rates, saw short-covering and the sector index firmed 2.5 percent.
Largest lender State Bank of India rose 2.3 percent, while rivals ICICI Bank and HDFC Bank were up 3.3 percent and 2.5 percent respectively.
Energy major Reliance Industries, which earlier this month was briefly overtaken by Coal India as the country's top-listed firm, rose 3.6 percent to 745 rupees.
The stock, a favourite with foreign investors, has fallen 30 percent so far this year, compared to a 21 percent decline in the main index.
Shares in largest listed developer DLF Ltd rose 2.1 percent after the Financial Express newspaper reported the company was in talks to sell its 70 percent stake in DLF IT Park on the outskirts of New Delhi to financial services firm IDFC, to help cut its debt.
The 50-share Nifty index rose 2.6 percent to 4,871.20 points.
In the broader market, 1,196 advances overwhelmed 181 declines on moderate volume of 175.2 million shares.
Bernanke, speaking at an annual Fed conference at Jackson Hole, Wyoming on Friday, gave no details of further action to boost the U.S. recovery but said the central bank's policy panel would meet for two days next month instead of one to discuss additional monetary stimulus, offering some hope to investors.
The statement and as Hurricane Irene, downgraded to tropical storm status, caused less damage than feared in New York city, helped boost Asian shares.
By 0500 GMT, the MSCI's measure of Asian markets other than Japan was up 2.3 percent, while Japan's Nikkei was 0.6 percent higher.
TOP THREE BY VOLUME ON NSE
nohup.out nohup.out_m_folder replace_dependentitem_tags.sh Suzlon Energy on 6.4 million shares
nohup.out nohup.out_m_folder replace_dependentitem_tags.sh Jaiprakash Associates on 5.6 million shares
nohup.out nohup.out_m_folder replace_dependentitem_tags.sh Unitech on 4.5 million shares
STOCKS ON THE MOVE
nohup.out nohup.out_m_folder replace_dependentitem_tags.sh Iron ore exporter Sesa Goa fell 3.5 percent to 195.10 rupees, its lowest level in nearly two years, after the company said its performance would be affected after the Supreme Court extended a ban on mining to two more districts in Karnataka.
nohup.out nohup.out_m_folder replace_dependentitem_tags.sh Budget carrier SpiceJet Ltd rose 4.6 percent to 22.75 rupees after its board approved issuing 36 million shares to Chairman Kalanithi Maran on a preferential basis.
(Reporting by Prashant Mehra; Editing by Ranjit Gangadharan)