The 30-share barometer gained 72.48 points, or 0.36 per cent, to 20,063.38. The index had lost almost 113 points in the previous two sessions.
All sectoral indices trading in the positive zone with a gain up to 0.60 per cent.
Similarly, the wide-based National Stock Exchange index Nifty moved up by 16.40 points, or 0.27 per cent, to 6066.30.
Brokers said fresh buying by participants on expectations of an improvement in the liquidity in the market after the Reserve Bank reduced Cash Reserve Ratio by 0.25 per cent and covering-up of short positions ahead of tomorrow's monthly expiry in the derivatives segment influenced the trading sentiments.
Besides, a firming trend in the Asian region following overnight gains on the US markets supported the trading.
Meanwhile, in Asia, Hong Kong's Hang Seng index rose by 0.47 per cent, while Japan's Nikkei up by 1.14 per cent in early trade. The US Dow Jones Industrial Average ended 0.52 per cent higher in yesterday's trade.
FX/debt factors to watch
GLOBAL MARKETS ROUNDUP
* Asian shares inched up on Wednesday, cautiously awaiting local corporate earnings reports and the US Federal Reserve's monetary policy decision due later in the session, while taking comfort from improving global economic prospects.
* Euro bulls were battling to break 14-month peaks versus the dollar on Wednesday and trip option barriers at $1.3500, while the yen stayed under pressure on the belief that true reflation in Japan would require a much weaker currency.
* US crude oil rose more than 1 percent on Tuesday, exceeding gains in Brent crude, after strong US housing market data bolstered confidence that economic growth and fuel demand were accelerating.
* US Treasury debt prices eased for a fourth day on Tuesday as investors pushed to undermine prices amid sales of $99 billion of US government notes this week.
LOCAL MARKETS PREVIOUS CLOSE
* BSE index 19,990.90 (-0.56)
* NSE index 6,049.90 (-0.41)
* Rupee 53.76/77 per dollar (53.91/92)
* 10-year bond yield 7.85 pct (7.86 pct)
* 5-year OIS rate 7.17 pct (7.14 pct)
* 1-year OIS rate 7.57 pct (7.56 pct)
* Call money 7.95/8.05 pct (8.00/8.10 pct)
FACTORS TO WATCH
* The Reserve Bank of India will hold its post-policy tele-conference with economists and analysts after cutting its key repo rate for the first time in 9 months and also banks' cash reserve ratio. Call to start at 0900 GMT.
* India's finance minister, Palaniappan Chidambaram, said he is confident that a $2.6 billion tax dispute with Vodafone would be settled, telling the Financial Times that a third round of talks will be held this week.
* Indian finance minister Palaniappan Chidambaram said on Tuesday he saw no reason why companies that fulfil all central bank criteria should be denied banking licenses as part of plans to shake up the country's bank sector.
* Reliance Industries, India's largest private sector company, priced its senior perpetual bond non call five Reg S/144a bond at 5.875 percent. Size was capped at $800 million even though the order book was in excess of $3 billion, said bankers close to the deal. (IFR)
* The RBI said on Tuesday it accepted all 31 bids for 913.10 billion rupees at its one-day repo auction, through which it injects cash into the banking system. It also accepted the sole bid for 50 million rupees at its reverse repo auction, through which it absorbs cash from the system.
* Indian banks' refinancing with RBI rises to 203.84 billion rupees.
* Indian banks' cash balances with RBI rise to 3.11 trillion rupees.