IT, capital goods, realty and FMCG sectors attracted good buying, while from pharma and consumer durables attracted profit-booking.
Infosys, HDFC, L&T, SBI, ONGC, HDFC Bank, Wipro and ITC supported the rise. However, the fall in Bharti Airtel, ICICI Bank, NTPC, Sun Pharma and Coal India restricted the gains.
The BSE 30-share index, Sensex, initially touched a low of 16,781.62 but firm equities in the Asian region lifted it to over 17K mark at 17,003.71. However, it dropped towards the close and ended at 16,877.06, up 71.73 points or 0.43 percent.
The 50-issue Nifty of the National Stock Exchange closed 23.45 points or 0.47 per cent up at 5,062.60.
Firm Asian markets and higher openings in Europe strengthened investor sentiment amid reports that EU leaders may successfully evolve a concrete plan to end the euro-zone debt crisis.
"Markets are building expectation that euro-zone will come out with a solution to curtail debt crisis and infuse liquidity to fuel in growth. The European central banks are widely expected to cut interest rates at its policy meeting tomorrow," said Milan Bavishi, Head Research, Inventure Growth and Securities.
Analysts said, however, that domestic indicators were mixed. While the government put on hold its decision to allow FDI in multi-brand retail, it led to parliament proceedings which had been disrupted throughout the winter session thus far.
FIIs, main market movers, continued buying and picked up shares worth Rs 211.90 crore on December 5 as per Sebi data.
Globally, key indices in China, Hong Kong, Japan, Singapore, South Korea and Taiwan gained up to 1.71 per cent. European markets too exhibited a firm trend in the afternoon deals and were up about a per cent.
In all, 21 of the 30 Sensex scrips made gains.
Wipro was up 3.31 per cent, Infosys (1.95 pc), Jaiprakash (1.89 pc), HDFC (1.82 pc), ONGC (1.64 pc), Sterlite (1.58 pc), SBI (1.47 pc), Bajaj Auto (1.42 pc), L&T (1.26 pc), Tata Steel (1.20 pc) and DLF (1.15 pc).
However, Bharti Airtel fell by 3.33 pc, followed by NTPC - 3.21 pc, Sun Pharma - 2.58 pc, Coal India - 2.44 pc, ICICI Bank - 1.64 pc and Cipla - 1.34 pc.
Among sectoral indices, BSE-IT rose by 1.43 pc, Capital Goods - 0.78 pc, Realty - 0.77 pc and FMCG - 0.71 pc, while Healthcare declined by 1.53 pct and Consumer Durables 0.60 pc.
The total market breadth on the BSE remained positive as 1,451 stocks ended with gains, while 1,362 stocks finished in the red. The total turnover rose to 3,092.83 crore from the Monday's level of Rs 1,823.04 crore
