The market on Tuesday reversed gear and closed in green territory weeks ahead of the Budget amid reports government could cut tax rates on February 1.
With fears of long-term capital gains (LTCG) tax on the sale of shares subsiding after FM Arun Jaitley's statement, short covering helped Sensex and Nifty made a strong recovery on the second trading day of the week.
While the Sensex closed 406 points or 1.57 percent higher to 26,213 level, Nifty made a 124 points or 1.58 percent recovery to end at 8,032 level.
The Sensex traded in a broad range of 25803 level to 26249 level during the day.
Except GAIL (-0.95 percent), all 29 Sensex stocks ended in green.
Auto stocks contributed most to Sensex gains as the auto index rose 302 points to close at 19,897 level.
All 13 stocks on the index closed higher with Bosch (3.93 percent) and Bharat Forge (2.96 percent) logging maximum gains.
The JSW Energy stock rose 2 percent on report that its board has given nod to raise funds up to Rs 750 crore through issuance of redeemable non-convertible debentures by way of private placement.
The BSE metal index too rose 239 points or 2.46 percent to 9942 level. National Aluminium (7.94 percent) and Tata Steel (3.23 percent) were the top gainers.
Market breadth was positive with 1707 stocks closing higher against 862 ending in the red.
The BSE smallcap select index (1.78 percent) and midcap index (1.71 percent) were the top gainers among indexes based on market capitalisation.
Tokyo's Nikkei 225 was nearly flat at 19,403.06 and the Kospi of South Korea rose 0.2 percent to 2,042.17. India's Sensex added 0.8 percent to 26,009.86. The Shanghai Composite index slipped 0.3 percent to 3,114.66. Shares gained in Southeast Asia. Markets in Hong Kong and Australia were closed for Boxing Day.
The Dow Jones industrial average picked up 14.93 points, or 0.1 percent, to 19,933.81. The Standard & Poor's 500 index gained 2.83 points, or 0.1 percent, to 2,263.79. The Nasdaq composite rose 15.27 points, or 0.3 percent, to 5,462.69. By midday Tuesday in Asia, Dow futures were down 0.05 percent and S&P futures shed 0.03 percent.