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The markets however gave up some of the gains in late morning deals.
At 11:07 am, the Sensex traded 82.69 points - or 0.23 per cent - higher at 36,782.53 while the Nifty was up 37.25 points - or 0.34 per cent - at 10,899.85.
Market breadth was sharply positive, with 1,320 stocks on the BSE trading with gains and 591 struggling with losses. On the NSE, 1,219 stocks advanced while 450 declined.
Top percentage gainers on the 50-scrip index at the time were Indiabulls Housing Finance, Yes Bank, Coal India, UltraTech Cement, Dr Reddy's and Tech Mahindra, trading between 2.08 per cent and 3.83 per cent higher.
Larsen & Toubro, ICICI Bank and Axis Bank were the top contributors to the advances in Sensex.
Equities in global markets extended already substantial losses on Tuesday, as China's yuan currency dropped to an 11-year low after Washington designated Beijing a currency manipulator in a rapid escalation of the US-China trade war.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 1.5 per cent to its lowest level since January. The Shanghai Composite Index retreated 2 per cent. Japan's Nikkei shed 2.1 per cent, Australian stocks fell 2.3 per cent and South Korea's KOSPI slid 1.6 per cent.
US Treasury Secretary Steven Mnuchin said on Monday the government had determined that China is manipulating its currency, and that Washington would engage the International Monetary Fund to eliminate unfair competition from Beijing.
The Trump administration's dramatic move against China hastened the risk aversion seen in global markets this week. On Monday, China let the yuan slide in response to the latest US tariffs, which are expected to further aggravate trade tensions between the world's two largest economies.
The Sensex and Nifty had ended 1.13 per cent and 1.23 per cent lower respectively on Monday.
(With inputs from Reuters)