The 30-share barometer rebounded by 96.72 points, or 0.50 per cent, after yesterday's losses, to 19,420.52.
All the sectoral indices were trading in the positive territory with gains up to 0.86 per cent.
Similarly, the wide-based National Stock Exchange index, Nifty moved up by 32.15 points, or 0.54 per cent, to 5,902.25.
The Sensex had yesterday fell by nearly 94 points on fag-end selling on growth concerns.
Brokers said fresh buying by participants amid a firm trend in the Asian region on hopes of a last-minute deal to avert the US fiscal cliff mainly led the recovery on the domestic bourses here.
In the Asian region, Hong Kong's Hang Seng index rose 0.35 per cent, while Japan's Nikkei gained 0.71 per cent in early trade. The US Dow Jones Industrial Average ended 0.14 per cent lower in yesterday's trade.
Stocks to watch-Dec 28
Reuters: GLOBAL MARKETS ROUND UP
Nifty futures on the Singapore Exchange were flat, while the MSCI-Asia Pacific index, excluding Japan, advanced 0.41 percent.
The yen hit its lowest level in more than two years on Friday on expectations of drastic monetary easing intensify, while Japanese stocks rose to 21-month highs. Asian shares advanced on signs Washington is striving to avoid a fiscal crunch.
U.S. stocks fell for a fourth day on Thursday, but recovered most of their losses after the House of Representatives, in the barest sign of progress, said it would come back to work on avoiding the "fiscal cliff" this weekend.
FACTORS TO WATCH
Bharti Infratel to debut after $760 million IPO
Weekly lending, FX reserves
INDIAN STOCKS TO WATCH
The petroleum ministry has proposed a gradual rise in diesel prices, by 1 rupee per litre every month over a 10-month period, in order to avoid controversy engendered by steep hikes in infrequent revisions, according to source at the ministry.
The GMR Group has walked out of the 555-km long Kishangarh-Udaipur-Ahmedabad National Highway, 16 months after it won this in a bid in which it promised to pay the National Highways Authority of India (NHAI) over 90 billion rupees on a net present value (NPV) basis.
An NHAI official confirmed getting the notice.
The Reserve Bank of India (RBI) is likely to release in January the final norms on issuing bank licences, according to RBI sources.
The law ministry has said that Telecom Consultants of India, which owns 30 percent stake in a Bharti Airtel subsidiary that offers mobile services in north-eastern states and Rajasthan, should not seek a listing of this company.
Fair trade regulator CCI has approved the merger of Dewan Housing Finance Corp's two arms -- DHFL Holdings and First Blue Home Finance -- with the parent company.