Shares of realty, refinery, banking, capital goods, auto, metal and power companies shot up as operators and investors opted for heavy buying at existing levels.

The BSE Sensex rose by 584.39 points, or 3.62 per cent, to 16,739.01, its highest close since December 7, 2011. The index has risen by 1,284.09 points, or 8.31 per cent, in the last three weeks.

The S&P CNX Nifty also gained 182.60 points, or 3.75 per cent, to 5,048.60, its highest close since December 7, 2011.

The BSE Mid-Cap index rose by 1.75 per cent and the BSE Small-Cap index gained 1.71 per cent. Both these indices underperformed the Sensex.

Foreign institutional investors (FIIs) bought shares worth Rs 4,441.37 crore in the eight trading sessions from January 10 to 19, 2012, as per provisional data from the stock exchanges.

Trading began on a positive note as headline inflation hit a two-year low, which reinforced expectations that the central bank will start cutting interest rates in the coming months to revive slowing economic growth. Headline inflation eased to a two-year low of 7.47 per cent in December, 2011, from 9.11 per cent in November, 2011.

Gains in world stocks triggered by stronger-than-expected GDP growth in China, the world's second-biggest economy, in the fourth quarter of 2011 also boosted the market sentiment.

Key benchmark indices reached their highest closing level in more than six weeks as private sector bank HDFC Bank, two-wheeler makers Hero MotoCorp and Bajaj Auto reported strong Q3 results.

India's second-largest bike maker by sales Bajaj Auto jumped 8.97 per cent, while Hero MotoCorp gained 8.96 per cent after the company reported 42.89 per cent growth in net profit.

Index heavyweight Reliance Industries (RIL) jumped 8.37 per cent in view of a proposal for buyback of equity shares.

Tata Power Company jumped 9.10 per cent and NTPC gained 5.06 per cent.

India's largest realty firm by net profit DLF rose 8.83 per cent, while India's largest small car-maker by sales Maruti Suzuki India surged by 12.57 per cent and was the top gainer from the Sensex pack.

India's largest truck-maker by sales Tata Motors rose by 4.84 per cent.

In addition, India's largest private sector bank by branch network ICICI Bank rose by 6.71 per cent, while India's second-largest bank by net profit HDFC Bank rose 4.13 per cent.

India's largest commercial bank by net profit and branch network State Bank of India (SBI) gained 8.7 per cent.

Metal stocks rose as data showing China's manufacturing gauge remained in contraction mode in January, 2012, boosted the case for monetary policy easing in the world's second-largest economy. China is the world's largest consumer of copper and aluminum.

Among the other gainers, Sterlite Industries India closed 10.15 per cent higher and Hindalco Industries rose by 7.73 per cent. In addition, India's largest private sector steel-maker by sales Tata Steel rose 5.03 per cent.

Among the major indices, the BSE-Realty index shot up by 7.97 per cent, followed by the BSE-Oil&Gas index (6.43 per cent), Bankex (5.94 per cent), the BSE-CG (5.49 per cent), BSE-Auto (4.17 per cent), BSE-Metal (4.10 per cent), BSE-Power (3.83 per cent) and BSE-CD (3.48 per cent).

In the 30-share Sensex pack, 23 stocks gained and seven declined during the week.