IT stocks also supported gains in view of a weak rupee. Global cues also helped as China was buoyed by recent data indicating recovery and reported intervention by Portugal's central bank to rescue crisis-hit Banco Espirito Santo, boosted confidence. Live updates: Indian rupee vs US dollar, others
The 30-share barometer, which had lost 606.58 points in the previous two sessions, commenced on a strong footing to touch the day's high of 25,754.42. It settled with a gain of 242.32 points, or 0.95 per cent, at 25,723.16. Intra-day, it had fallen to a low of 25,531.38 but recovered smartly.
The 50-share NSE Nifty rose by 81.05 points, or 1.07 per cent, to close the session at 7,683.65 after shuttling between 7,694.80 and 7,622.05 intra-day. It had slipped 189 points in past two days.
Expectations that the Reserve Bank of India (RBI) in its monetary policy review tomorrow will give some relief supported the bullish market sentiment, brokers said. However, consensus is of the view that RBI will not cut rates tomorrow.
Interest-sensitive stocks such as SBI, ICICI Bank, and Axis Bank gained about one per cent ahead of RBI meet outcome.
Shares of Infosys zoomed 3.66 per cent to end the day as the best Sensex gainer. Hindalco spurted 3.12 per cent, Sesa Sterlite 2.44 per cent, Wipro 2.42 per cent, Maruti Suzuki 2.40 per cent and Bajaj Auto 1.72 per cent. Overall, 25 constituents of the 30-scrip Sensex rose.
The weakness in the rupee, which is trading at over 3-month low at 61.08 (intra-day) against the dollar, helped IT stocks, which get a large chunk of sales in dollars.
Meanwhile, overseas investors pumped in USD 6 billion into the Indian securities market in July -- taking overall net inflows since beginning of 2014 to over USD 26 billion.
Sectorwise today, the BSE Consumer Durables index gained the most by rising 3.20 per cent, followed by IT index (2.08 per cent), Power index (1.73 per cent), Teck index (1.73 per cent) and Banking index (0.70 per cent).
* NSE index gains 1.07 pct; BSE index adds 0.95 pct
* Rate-sensitive stocks advance ahead of RBI policy
* Infosys up 3.7 pct, biggest single-day gain since June 11
Indian shares snap 2-day losing streak; tech stocks gain
(Reuters) Indian shares ended higher on Monday after two days of losses as software services exporters such as Infosys rallied on a weaker rupee while lenders gained a day before the central bank's policy review.
However, sentiment remained broadly cautious after foreign investors sold a net $175.73 million worth of shares on Friday, the third straight session of net sales that totalled $494.7 million.
Investors will be closely eyeing the Reserve Bank of India's policy review on Tuesday. The central bank is widely expected to keep interest rates on hold, but analyst say it may loosen tight cash conditions by easing mandatory bond requirements for lenders among other potential measures.
Global factors will also be critical after sharp falls late last week. In India, the NSE index fell 2.4 percent over the previous two sessions to end on Friday at its lowest close since July 15.
"Symptoms are all positive only. But everything depends on the RBI policy, which will pave the direction for the short-term. Outlooks remains firm and it's still a buy-in-dips market," said Suresh Parmar, head, institutional equities at KJMC Capital Markets.
The broader NSE index ended up 1.07 percent at 7,683.65, while the benchmark BSE index gained 0.95 percent to 25,723.16.
Shares in software services exporters gained after the rupee last week posted its biggest weekly fall since record low levels in August last year.
The local currency rebounded slightly on Monday but was still trading weaker than 61 per dollar.
Infosys shares rose 3.72 percent, marking their biggest single-day gain since June 11. Wipro Ltd gained 2.4 percent, Tech Mahindra Ltd added 1.9 percent and HCL Technologies Ltd ended 2.6 percent higher.
Lenders gained on hopes the RBI would announce measures to ease tight liquidity conditions and take action to help spur lending. State Bank of India ended up 1 percent, while ICICI Bank Ltd closed 1.1 percent higher.
Upstream oil and gas companies also gained, with Indian Oil Corporation up 4.4 percent and Bharat Petroleum Corp Ltd higher 4 percent, as brent crude fell to its lowest settlement since April 2 on Friday.
Shares in tyre makers gained as traders noted rubber prices hovered near their lowest levels in 4-1/2 years. Apollo Tyre Ltd ended 5.3 percent higher, while JK Tyre and Industries Ltd closed up 5.6 percent.
Auto companies also rose after reporting robust sales numbers for the month of July. Maruti Suzuki India Ltd ended 2.3 percent higher, while Mahindra & Mahindra Ltd added 1 percent.
However, among decliners, Syndicate Bank ended 6.9 percent lower after its chairman was arrested over allegations of taking bribes to grant loan extensions to a company.
FACTORS TO WATCH
* Dollar rally in balance after bumper July
* Oil steadies around $105 but surplus still weighs
* Investors cheer Portuguese bank rescue
* Foreign institutional investor flows