The BSE benchmark index ended above the 19,000 level for the first time since April 2, while the benchmark 10-year bond yields fell to their lowest since July 28, 2010.
Gains also tracked a rebound in European shares as this week's brutal sell-off, provoked by concerns about global economic growth, lured back some investors looking for bargains.
Analysts believe the recent slump in global gold and crude prices, if sustained, should wipe out a big portion of India's current account deficit, providing more elbow-room to the central bank to lower rates for the third time this year.
Finance Minister, P. Chidambaram, also said on Wednesday he expected the country's current account deficit for the 2012/13 fiscal year ended March to be around 5 percent of gross domestic product and perhaps half that amount in one to two years.
"Crash in bullion and crude has resulted in the revival of Indian economy and Indian stock market," said Vijay Kedia, director of private wealth management firm Kedia Securities.
Earnings are important, but at this juncture quantum of RBI rate cut would be more crucial to watch, Kedia added.
The benchmark BSE index rose 1.52 percent, or 285.30 points, to 19,016.46, closing above the 19,000 level for the first time since April 2 and gaining 4.2 percent for the week.
The broader NSE index advanced 1.66 percent, or 94.40 points, to 5,783.10, marking its highest close since March 18 and gaining 4.6 percent for the week.
Mortgage lender Housing Development Finance Corp Ltd gained 3.5 percent, while ICICI Bank Ltd
IndusInd Bank Ltd
Oil marketing companies such as Hindustan Petroleum Corp Ltd
Hindustan Petroleum gained 2.5 percent, Bharat Petroleum Corp Ltd
Shares of auto battery makers gained on expectations of better margins after prices of lead, a key raw material for batteries, tumbled to near October 2012 lows.
Exide Industries Ltd
However, among stocks that fell, Wipro Ltd