Sensex gained 263 points to close at 21,210 as a fall in crude prices eased concern over the widening fiscal and current account deficit. India imports two-thirds of its oil requirements.
Crude oil futures fell for the first time in three days amid expectations that supply worries over a stand-off between Russia and Ukraine may be exaggerated. Brent crude oil futures for delivery in April were down $1.57 a barrel at $109.63 a barrel.
Market sentiment was further boosted by an improvement in the manufacturing index and data showing foreign funds as net buyers of Indian stocks on Monday. Foreign institutional investors bought shares worth a net Rs 199 crore yesterday, according to provisional data from the stock exchanges.
The total turnover on the BSE was lower at Rs 2,148 crore against Rs 3,863 crore on Monday.
Most metal stocks gained, tracking improved sentiment in global markets.
ONGC gained two per cent to Rs 296 after it said its board meeting would be held on March 24 to consider payment of a second interim dividend for the financial year 2013-14.
Dhanlaxmi Bank spurted 15 per cent to Rs 34.20 after the bank said its board approved allotment of 5.96 crore shares at Rs 39 a share aggregating to Rs 232 crore, through a preferential allotment to the promoter group.
GMR Infrastructure was up two per cent at Rs 21 as the consortium led by the company won a construction package for doubling the rail-line between Jhansi and Bhimsen stations in Uttar Pradesh.
Oriental Bank of Commerce jumped two per cent to Rs 172 with the stock extending Monday gains triggered by its plans to raise Rs 1,000 crore.
Bharat Heavy Electricals rose three per cent at Rs 167 after Life Insurance Corporation bought 4.66 per cent stake in the company from the Government through a bulk deal on BSE on Monday.
Major gainers were Tata Chemicals (8 per cent), Hindalco Inds (8 per cent), Yes Bank (6 per cent), Bank of Baroda (6 per cent), Oriental Bank (6 per cent), IRB Infra (5 per cent), Century Textiles (5 per cent), Wockhardt (5 per cent), Punjab National Bank (5 per cent), Sesa Sterlite (5 per cent), Karnataka Bank (5 per cent) and IndusInd Bank (5 per cent).
Prominent losers included Motherson Sumi (-4 per cent), GlaxoSmithKline Pharma (-3 per cent), JP Power (-2 per cent), Sobha Developers (-2 per cent), Mcleod Russel (-2 per cent) and HCL Tech (-2 per cent).