The BSE Sensex closed about 2% higher at 18,560 after touching a high of 18,600 while the NSE Nifty gained 1.8% to finish at 5,576 after being as high as 5,589.
India's rupee rose for a fourth consecutive session on Monday, as strong rally in local stocks raised optimism about overseas capital flows in the remaining parts of the year.
The local unit's rise to the strongest level in nearly four weeks was also partly boosted by the dollar's losses versus major currencies in the overseas markets.
The partially convertible rupee ended at 46.5450 per dollar, after touching a day's peak of 46.4550, its strongest since Aug. 11. It opened at 46.59 against Friday's close of 46.63/64.
The currency is still the worst performer in the current quarter among the 10 most-traded Asian currencies.
The BSE Sensex closed about 2% higher at 18,560 after touching a high of 18,600 while the NSE Nifty gained 1.8% to finish at 5,576 after being as high as 5,589.
Foreign Institutional Investors (FIIs) have poured in US$13bn into Indian shares year-to-date after pumping over US$17bn last year.
The dollar index, which tracks the US currency against six major international rivals, fell below 82 before reclaiming that level, as most Asian currencies were stronger against the greenback.
The dollar dipped against higher-yielding currencies and looked poised to test a 15-year low against the yen after failing to retain gains made following the release of the monthly jobs data on Friday.
The better-than-expected US payrolls data on Friday eased some of the concerns over the global economic slowdown and boosted demand for risky currencies such as the euro and emerging market currencies.
The South Korean won and the New Zealand dollar were the biggest gainers among the 16 most-traded currencies after the MSCI Asia Pacific Index of shares climbed the most in more than six weeks.
The US currency traded at US$1.2873 per euro from US$1.2896 at the end of last week and 84.23 yen from 84.31 yen.
Meanwhile, the yen weakened for a second day against the Canadian dollar as the Bank of Japan (BOJ) commenced a policy meeting in Tokyo.
Foreign-exchange trading may be subdued today because of the US Labor Day holiday.
