Good buying was observed in capital goods, banking, auto, oil and gas, healthcare, metal and IT, while selling pressure was seen in consumer durables sector.
The 30-scrip Sensitive Index (Sensex) of the S&P Bombay Stock Exchange (BSE), which opened at 27,439.06 points, closed trade at 27,865.83 points, up 519.50 points or 1.90 percent from the previous day's close at 27,346.33 points.
The Sensex touched a high of 27,894.32 points and a low of 27,438.28 points in the trade so far.
The S&P capital goods index surged by 413.01 points, bankex moved up by 338.01 points, auto index inched up by 264.20 points, oil and gas index increased by 238.91 points, healthcare index increased by 237.86 points, metal index went up by 221.78 points and IT index got augmented by 205.86 points.
However, consumer durables index plunged by 323.92 points. The wider 50-scrip Nifty of the National Stock Exchange (NSE) also closed trade up 153 points or 1.87 percent at 8,322.20 points after touching a record high of 8,330.75.
"Markets built up on yesterday's rally on the back of renewed optimism on fiscal reforms, improved growth in US, liquidity easing by Japan and diminished possibilities of an immediate increase in US interest rates," said Dipen Shah, head - private client group research, Kotak Securities.
"In the near term, focus will consistently remain on further reform initiatives. Winter session of the parliament will be closely watched for GST, land reforms, etc. Economic growth in China/Eurozone will engage the attention of the market and the remaining quarterly results will have stock-specific impact," he added.
The major Sensex gainers were: HDFC, up 4.13 percent at Rs.1,105.95; GAIL, up 3.83 percent at Rs.529.15; L&T, up 3.61 percent at Rs.1,654.85 and Tata Power, up 3.36 percent at Rs.93.75.There was only one major Sensex loser Friday, Bharti Airtel, down 2.26 percent at Rs.398.30.
Among the Asian markets, Japan's Nikkei went up by 4.83 percent, China's Shanghai Composite Index gained by 1.22 percent and Hong Kong's Hang Seng was up by 1.25 percent.
In Europe, London's FTSE 100 was up by 1.08 percent, France's CAC 40 was 1.95 percent up and Germany's DAX Index increased by 1.72 percent.