The Sensex finished 291.86 points or 0.74 per cent higher at 39,686.50 while the Nifty gained 76.75 points to settle at 11,865.60.
Global market rallied on account of trade truce between the US and China and the scope to maintain required oil supply from OPEC.
"Sequential pick up in monthly auto sales and a likely proposal to simplify Goods and Services Tax (GST) rate due to rise in revenue collection boosted the market sentiment," said Vinod Nair, Head of Research, Geojit Financial Services.
Both the US and China have agreed to restart trade talks. Investors feared that the US would levy additional tariffs on goods imported from China, which could roil the global financial markets, if the trade talk between the two countries in G20 summit failed.
The trade tension was one of the single biggest reasons for a showdown in global growth, the International Monetary Fund (IMF) had said.
"Crude prices surged after top producers Saudi Arabia, Russia and Iraq backed a plan to extend supply cuts for another six to nine months," said Deepak Jasani of HDFC Securities.
Nair added that the investors are watchful ahead of the Union budget and hope that fiscal deficit is maintained in the long-term while short-term support is provided with minor dilution in FY20 with non-budgetary resources like RBI reserves, divestment and public sector units.
( With inputs from IANS )