Sensex rose by almost 203 points to end the week at 19,444.84, snapping its last 2-week losing streak.
All-round buying led by refineries, realty, power and capital goods, following persistent capital inflows from foreign funds amid sops for exporters announced by the government during the week also boosted the market sentiment.
RIL, ONGC, IOC and BPCL attracted heavy buying following reports that the government might gradually increase the diesel price to cut subsidies.
The possibility of tough reforms after speech of Prime Minister Manmohan Singh at the National Development Council (NDC) meeting, indicating a phased reduction in energy subsidies, and an early implementation of the Goods and Services Tax (GST) helped the recovery.
The government announced extension of 2 per cent interest subsidy to exporters till March 2014 and a pilot scheme of 2 per cent interest subsidy for project exports through Exim Bank.
The BSE benchmark Sensex resumed higher at 19,278.00 and hovered in a range of 19,504.40 and 19,237.26 before settling the week at 19,444.84, disclosing a net gain of 202.84 points or 1.05 per cent.
The NSE 50-share Nifty also shot up by 60.65 points or 1.04 per cent to 5,908.35.
IT stocks gained as US lawmakers arranged talks with political parties over the budget deficit issue before the deadline.
Foreign Institutional Investors (FIIs) continued their buying spree during the week by investing net Rs 5,663.20 cr including the provisional figure of December 28.
Asian stocks ended higher on Friday with Japanese shares poised for their biggest annual gain since 2005, after a report fanned speculation that the country's central bank will respond to government calls for more asset purchases.
Overall, 21 out of 30 Sensex-based scrips closed with gains while others finished with losses.
Major gainers were Bharti Airtel (3.65 pct), Tata Motors (3.42 pct), Wipro (3.23 pct), Tata Power (2.93 pct), Bajaj Auto (2.36 pct), Reliance Ind (2.11 pct), Larsen (1.85 pct), SBI (1.89 pct), ONGC (1.82 pct) and Icici Bank (1.74 pct).
However, Jindal Steel declined by 1.94 pct, M&M by 1.40 pct and HUL by 1.12 pct.
All 13 sectoral indices settled with gains between 0.02 pct and 2.05 pct. The BSE-Oil&Gas rose by 2.05 pct followed by BSE-Realty 2.02 pct, BSE-Power 1.68 pct, BSE-CG 1.58 pct, BSE-Teck 1.50 pct, BSE-PSU 1.46 pct, Bankex 1.27 pct and
BSE-IT 1.13 pct.
The total turnover at BSE and NSE dropped to Rs 8,780.72 cr and Rs 40,379.64 cr respectively during the truncated week from the previous week's level of Rs 12,784.27 cr and Rs 63,160.24 cr.
The BSE and NSE were closed on December 25 on account of "Christmas".
Forex: Rupee broke its three-week falling trend and appreciated by 29 paise to close at over 1 week high of 54.77 against the dollar during the shortened week under review following strong local equities amid fresh dollar selling by exporters and some banks.
The Forex market was closed on December 25 for observing "Christmas".
Persistent capital inflows amid weak dollar overseas on concerns over the US fiscal cliff also helped the rupee recovery, a forex dealer said.
At the Interbank Foreign Exchange (Forex) market, the domestic unit commenced slightly weak at 55.10 as against last weekend's close of 55.06 and immediately touched a low of 55.21 on Monday following month-end as well as year-end dollar demand from importers, mainly oil refiners.
Later, it turned positive on dollar selling by exporters and some banks amid continued foreign fund inflows. It touched a high of 54.72 before concluding at 54.77, showing a rise of 29 paise or 0.53 per cent. In last 3 weeks, it had dropped by
80 paise or 1.47 per cent
Sensex closed the week higher by 202.84 points or 1.05 pct while Foreign Institutional Investors (FIIs) injected USD 877.12 million in the first 3 trading days of the week, as per Sebi data.
The Commerce Ministry approved a package of incentives to boost exports, which supported the rupee.
Mr. Pramit Brahmbhatt, CEO, Alpari Financial Services (India) said," The INR regained some of the lost ground of previous few weeks. The trading activity remained low due to Christmas and New Year vacations plagued global and domestic
markets with thinner volumes."
"The hopes of an accommodative monetary policy by the RBI in the last quarter of the financial year 2012-13 helped the recovery in Rupee, supported by rising capital inflows and exporter selling."
"The month end and quarter end demand for dollar from Oil and Gold importers continued to restrict strengths in INR. Exporters can take advantage of the rise in pair towards 55.50 - 56.00 levels for covering their receipts as a move above 54.70 shall witness the pair strengthening towards 54.20 levels," he added.
The RBI fixed the reference rate for US dollar and euro at Rs 54.8473 and Rs 72.6298 from Rs 55.0860 and Rs 72.7730, respectively, in the last weekend.
The Rupee premium for the forward dollar remained weak on sustained receiving by exporters.
The Rupee premium for the benchmark 6-month forward dollar payable in May dropped further to 148-150 paise from last weekend's level of 157-1/2-159-1/2 paise and far-forward contracts maturing in November also declined sharply to 288-290 paise as against 301-303 paise.
The rupee recovered smartly against Pound Sterling to end the week at 88.31 from preceding weekend's level of 89.44 and also hardened against the euro to finish at 72.16 from last weekend's level of 72.71.
However, it bounced back against the Japanese yen to close
at 63.51 per 100 yen from 65.42 last weekend.