Spurred by the overnight EU summit outcome, domestic bourses opened strong and rallied more than 1 per cent on broad based buying, driving the benchmark above 5,200 level.
Global financial markets surged after the European leaders unexpectedly announced a slew of emergency measures to tide over the worst debt crisis gripping the region.
The trading sentiment was also lifted by the late night issuance of draft guidelines for implementing the general anti-tax avoidance rules (GAAR) in a bid to address foreign investors' concerns over the controversial law.
The rupee's sharp rise against the US dollar also boosted the market. Investment banking giant Morgan Stanley's decision to upgrade Indian equities further fuelled the rally.
Though the rally was across the board, bank, FMCG, oil & gas, pharma, metal and technology counters witnessed heavy buying activity.
The 50-share Nifty scaled a high of 5,286.25 before closing at 5,278.90, a steep rise of 129.75 points, or 2.52 per cent, over the last close.
Jindal Steel, Tata Power, Sterlite Industries, BHEL, Maruti, Reliance Infra, Hindalco, Asian Paint, L&T and ICICI Bank were the top gainers from the Nifty bunch.
The turnover in cash segment surged to Rs 13,143.73 crore against Rs 11,322.10 crore yesterday. In all, 7,971.23 lakh shares changed hands in 57,34,397 trades. Market capitalisation stood at Rs 60,26,766 crore.