The market rose for the second consecutive day to regain the 17,000 level, as buoyant global markets kept the mood upbeat despite fresh terror attacks in Delhi on Wednesday.

World stocks rose from a two-week low on Wednesday and the euro rebounded across the board after Germany's top court rejected lawsuits aimed at blocking Germany's participation in bailout packages for Greece and other countries.

RIL extended gains on expectations the energy major will be able to step up flagging gas output off the country's east coast. The stock closed up 1.46% at Rs 833.50. BP's India unit head Sashi Mukundan had said on Tuesday that the oil giant was confident of raising output from RIL's KG D6 block.

State Bank of India, HDFC Bank and ICICI Bank gained between 0.91% and 3.3% on the day on growing expectations that the central bank may hold rates at its September 16 policy review. "We are following the European market and high beta-stocks that were badly beaten down are now seeing buying," said Vikas Khemani, president at Edelweiss Capital.

The benchmark 30-share BSE index closed up 202.19 points at 17,065, its highest closing high since August 10. The index rose for a second straight day, with 25 of its components closing in the green.

Better-than-expected data on the US services sector and Australian growth as well as speculation that Washington may unveil a $300 billion package to create new jobs also helped improve the global market sentiment. Cement and construction firm Jaiprakash Associates jumped 7.62% to Rs 71.35 on reports that it was in talks with Mexico's Cemex and South America's Votorantim Group to sell up to 26% stake in its cement business.

A spokesman for Jaiprakash Associates said he did not have an immediate comment. Realty shares gained with DLF closing up 2.64% and Unitech gaining 7.36% on bargain hunting. Power utilities also rose on value buying.

The sectoral index rose more than 2%. NTPC, Tata Power and Adani Power all closed around 3.5% higher. Foreign funds have bought shares worth $450 million this month until Tuesday after selling about $2 billion in August.

"Nothing has changed fundamentally for India in the past few days. It's just a pullback rally," said Deven Choksey, MD at brokerage KR Choksey.

The BSE index is down nearly 17% this year as rising interest rates and worries about the health of the global economy drove investors away from risky assets. The 50-share NSE index closed 1.19% higher at 5124.65 points.