Markets closed for the day with the Sensex up 124 points at 19,705 and the Nifty ended with a 41 points gain at 5,992 (provosional).
Markets continued to trade near the highs of the day on broad based buying after the US House of Representatives approved a rare tax increase, averting the fiscal cliff. At 1423 hrs, the Sensex was up 144 points at 19,725 and the Nifty advanced 45 points to trade at 5,996 in noon deals.
Earlier in the day, the Nifty touched a high of 6,006, breaching the 6,000 mark for the first time in two years and the Sensex saw a high of 19,757.
The deal the US Congress approved will hit the nation's wealthiest households in a bipartisan budget deal that stops the world's largest economy from falling into a deep fiscal crisis and recession.
On the domestic front, manufacturing activity surged to a six-month high in December, boosted by strong factory output and a spike in new orders, both of which hit their highest levels since June, a business survey showed on Wednesday. The HSBC Markit India Manufacturing PMI, which gauges the business activity of India's factories but not its utilities, jumped to 54.7 in December from 53.7 in November, its biggest monthly rise since January 2012.
Meanwhile the rupee strengthened by 36 paise to trade at fresh two-week high of Rs 54.32 against the US dollar in early trade today at the Interbank Foreign Exchange on increased dollar selling by exporters and banks amid sustained foreign capital inflows.
Asian and European markets cheered the developments in the US as a major risk for investors, namely a slump in the global economy, appeared to have receded for now. In Europe, CAC, DAX and FTSE started of1% higher. In the Asian markets, Hang Seng up nearly 3% was the top gainer followed by Shanghai Composite, KOSPI Composite, Taiwan Weighted, Straits Times which added 1% each.
Back home, in the broader markets, the smallcap index outperformed with nearly 1% gain as compared to the midcap index up 0.6% and Sensex up 0.7% respectively.
Among the sectoral indices, except FMCG index all the other were in the green with Consumer Durables, Capital Goods, Oil & Gas, Metal and Bankex indices leading gains, up 1% each.
FMCG index slipped into red as index heavyweights ITC and Hindustan Unilever dipped 0.5% and 0.3% respectively.
Banks gained as hopes of a January rate cut resurfaced. SBI, ICICI Bank, Axis Bank, Yes Bank, Indusind Bank and Bank of Baroda gained between 1-2%.
Metals continued to shine with Sterlite, Hindalco, Sesa Goa, Jindal Steel and SAIL leading gains, up 1-3%.
Oil & Gas advanced as index heavyweight Reliance Industries, advanced nearly 1% followed by gains in Gail India ,ONGC, BPCL and HPCL adding 2% each.
The other notable gainers from the Sensex pack included Bajaj Auto which gained nearly 3% after the company said its total sales in December increased 13% year-on-year to 343,946 units, due to higher demand for motorcycles and rise in exports.
Bharat Heavy Electrical Limited was trading higher by 3% as the government has imposed 35% safeguard duty on electrical insulators imported from China.
Maruti Suzuki, L&T, HDFC, NTPC and Cipla up 1-2% were the other prominent names in the green.
Among other stocks, KEC International has moved higher by over 7% at Rs 72.70 after the company said it has secured new orders worth of Rs 1,511 crore in its transmission, power systems and cable business from India, Oman, Nepal and Americas.
PC Jeweller has surged 7% to Rs 176, extending its previous day’s over 10% rally on the Bombay Stock Exchange. The stock opened at Rs 166 and has seen a combined 9.93 million shares changing hands on the counter till noon deals on both the exchanges.
The market breadth was very positive. 1792 stocks advanced while 1056 stocks declined on the BSE.