Top percentage gainers on the 50-scrip index at the time were Indiabulls Housing Finance, Vedanta, Bajaj Finserv, Eicher Motors, Grasim, Bajaj Finance and Maruti Suzuki India, trading between 2.94 per cent and 11.25 per cent higher.

Market breadth favoured gains, as 1,576 stocks on the BSE traded higher while 674 struggled with losses. On the NSE, 1,253 stocks advanced while 434 declined.

HDFC Bank, HDFC, Reliance Industries and ICICI Bank contributed the most to the advances in Sensex.

"The bounce-back is happening because the finance minister has assured the industry of corrective actions," news agency Reuters quoted Deven Choksey, a promoter at KR Choksey Investment Managers, as saying in a report. "Obviously, this will slow down selling by foreign investors because they are the ones who have been relentlessly selling in the markets."

In July, foreign portfolio investors pulled out a net Rs. 12,419 crore from the Indian equity markets.

The government estimates a total revenue loss of Rs 400 crore ($56.77 million) if it withdraws the higher taxes on foreign portfolio investors, amid news of falling sales and job cuts among automakers and other manufacturers.

Across-the-board buying backed the sharp gains in the markets, with the NSE Nifty Banking, Financial Services, Auto and Metal sectoral indexes spiking as much as 1.75 per cent, 2.16 per cent, 2.26 per cent and 1.43 per cent respectively.

The rupee appreciated by as much as 25 paise - or 0.35 per cent - against the dollar on Friday, extending its upmove for a second straight day.

Analysts awaited more large cap companies to report their earnings for market cues. GAIL, Bharat Petroleum, Britannia, Hindalco and SpiceJet will announce their financial results for the first quarter of the current financial year today.