The key benchmark index surged 188 points to end at 9,424 after hitting an intraday low of 9,088. Heavy buying was seen in realty, metal and oil & gas stocks.
The Nifty gained 1.8 per cent to close at 2,874 levels.
“The Nifty may touch 2,950 to 2,980 levels in the next few trading sessions. The 3,000 mark is critical for the index,” said Gaurav Ranade, technical analyst, Edelweiss Securities.
Realty, metal and oil & gas stocks led today’s broad-based rally. The realty index on the BSE jumped 4.3 per cent and the metal index surged 4 per cent. Major gainers in the realty pack were Ansal API, DLF and Peninsula Land. Ansal API jumped 14.6 per cent to Rs 27. In the metal space the biggest gainer was JSPL, up 13.7 per cent. Hindalco also ended 6.5 per cent higher.
The BSE oil & gas index also gained 3.6 per cent led by heavy buying in Aban Offshore, RNRL, Reliance Petroleum and RIL.
Among the Sensex scrips, JP Associates, DLF and Hindalco were the top gainers, up more than 6.5 per cent each.
Biggest losers in the pack were Sun Pharma, Bhel and Tata Motors.
Among other stock indicators, the BSE small cap index advanced 1 per cent and the CNX mid cap index gained 0.8 per cent.
Asian markets were mixed on Friday, with Japanese stocks sinking amid dismal economic numbers and a string of quarterly reports from leading companies like Sony and Honda showing plunging profits.
Hong Kong's key index edged higher on speculation about an interest rate cut in mainland China or other stimulus measures. European markets rose in early trade as Wall Street futures strengthened.
Markets had logged some gains earlier in the week, buoyed by an upbeat earnings outlook from British lender Barclays and a $819 billion stimulus package in the U.S. moving closer to reality, but confidence soured in Asia on bad economic and corporate news, especially out of Japan, Asia's biggest economy.
Japan's Nikkei 225 stock average fell 257.19, or 3.1 percent, to 7,994.05 as investors reeled from a mounting pile of bad earnings reports and the latest economic data, which showed industrial production falling at a record pace and unemployment jumping.
Hong Kong's Hang Seng clawed back early losses to rise 0.9 percent to 13,278.21. South Korea's Kospi retreated 0.4 percent while markets in Singapore and the Philippines also lost ground. Australia's main index gained 0.4 percent. Markets in mainland China are closed all week for the Lunar New Year.
As trading got under way in Europe, France's CAC-40 rose 0.3 percent, Germany's DAX gained 0.1 percent and Britain's FTSE 100 rose 0.6 percent.
US stock index futures were moderately stronger. Dow futures were up 38 points, or 0.5 percent, to 8,150, and S&P 500 futures were up 4.9 points, or 0.6 percent, at 847.70.
Industrial output at Japan's manufacturers plunged 9.6 percent from the previous month in December, the largest drop since Tokyo began measuring such data in 1953. The unemployment rate in the world's second-biggest economy jumped to 4.4 percent in December from 3.9 percent the previous month.
Honda Motor Corp. dived 9.2 percent ahead of quarterly results. The automaker's October-December profit, released after the market closed, tumbled 90 percent, hit by rising costs, a stronger yen and falling sales in key markets.
