By Abhishek Vishnoi
MUMBAI (Reuters) - The Sensex jumped nearly 2 percent and the Nifty rose more than 2 percent on Thursday to its highest close in nearly two weeks as software services exporters gained on bets for an improving business outlook in key markets, while banks surged on potential gains from falling bond yields.
Indian shares also tracked gains in regional peers, partly boosted by an upbeat survey on China's huge services sector.
Earlier in the day, the Nifty got a temporary boost after its October futures contract spiked as much as 2.87 percent in what multiple traders described as a "freak", or erroneous, trade.
Investors are now gearing up for the September-quarter earnings season with Infosys (INFY.NS) reporting its results on October 11.
"Management commentary and signs of green shoots in the earnings season would be more important than the actual earnings, which are more or less expected to be a whitewash this time," said Phani Sekhar, fund manager of portfolio management services at Angel Broking.
The Nifty rose 2.24 percent, or 129.65 points, to 5,909.70, closing above the psychologically important 5,900 level and rising for a second day. Markets were closed on Wednesday for a national holiday.
The Sensex advanced 1.97 percent, or 384.92 points, to 19,902.07.
Shares in software exporters gained after brokers said the sector was facing rising demand from the United States and Europe.
Tata Consultancy Services Ltd (TCS.NS) rose 3.9 percent, while Tech Mahindra Ltd (TEML.NS) gained 3.6 percent and Wipro Ltd (WIPR.NS) advanced 2.8 percent.
Banking stocks continued to track gains in bonds after the central bank said it would buy up to 100 billion rupees of bonds via open market operations on October 7.
Lenders are the biggest holders of government bonds and the Reserve Bank of India's rate hike last month had raised concerns about the holdings.
Bajaj Auto Ltd (NSI:BAJAJ-AUTO) surged 4.9 percent after its sales for September came higher than expectations, dealers said.
Tata Communications Ltd (NSI:TATACOMM.NS - News) rose 4.2 percent after HSBC upgraded the stock to "overweight" from "neutral" and raised its target price to 233 rupees from 180 rupees, citing a potential takeover of unit Neotel.
However, among stocks that fell, Hindustan Unilever Ltd (NSI:HINDUNILVR) fell 1.5 percent, adding to Tuesday's 1.3 percent decline after the parent company Unilever (LSE:ULVR.L - News) (AEX:UNA.AS - News) warned that a slowdown in its emerging markets accelerated in the third quarter.
(Editing by Subhranshu Sahu)