Staging a spirited recovery, the benchmark BSE Sensex bounced back by about 260 points to close at a nearly three-week high of 25,850.30 driven by positive overseas leads on upbeat US data on growth and consumer spending.

The broader NSE Nifty again cracked above the 7,800-mark as investors firmed up their bets.

The current account deficit (CAD), at USD 8.2 billion, narrowed to 1.6 per cent of GDP in the September quarter, which emboldened investors further.

Shares of metal, oil and gas, healthcare, power and realty spearheaded the rally on a fresh spell of buying.

The 30-share Sensex settled higher by 259.65 points, or 1.01 per cent, at 25,850.30 -- its highest closing since December 3.

The index had shed 145.25 points, or 0.56 per cent, in Tuesday's trade.

The 50-share NSE Nifty reclaimed the 7,800-level to hit a high of 7,871.45 before closing the day at 7,865.95, up 79.85 points, or 1.03 per cent.

Sentiment was buoyed after data showed that foreign funds after remaining sellers this month so far were seen adding to their holdings, brokers said.

The rupee rising for the seventh straight day against the dollar came as a big positive.

At the forex market, the rupee was up 20 paise at 66.13 (intra-day) against the US dollar.

Domestic shares had opened on a strong footing and mood remained upbeat during the session, tracking a firming trend at other Asian markets in line with overnight gains at the US and European markets.

Among 30 Sensex components, 25 advanced and five lost.

Sectorwise, the BSE metal index gained the most by rising 1.87 per cent, followed by oil&gas by 1.47 per cent, healthcare 1.38 per cent and power 1.30 per cent.

Buying activity by retail investors lifted the small-cap and mid-cap indexes by up to 0.43 per cent.

Globally, key indices in Hong Kong, Singapore, South Korea and Taiwan moved up to 0.96 per cent, while Shanghai Composite moved down by 0.43 per cent. Financial markets in Japan remained shut for a national holiday. European markets were in a better form in their early trade.

Meanwhile, market debutants Dr Lal PathLabs ended 49.85 per cent higher while Alkem Laboratories closed up by 31.57 per cent.

Foreign portfolio investors (FPIs) bought shares worth a net Rs 168.73 crore on Tuesday, as per provisional data released by the stock exchanges.

Market will be closed on Friday on account of Christmas.