The stock markets continued to rally in the afternoon session following the Government's decision to hold firm by notifying all FDI decisions taken last week despite the TMC fallout.

Analysts said that the positive cues from the Government coming in are boosting activity in the markets. Also, the Government giving its nod for the Rajiv Gandhi Equity scheme cheered the markets.

The Sensex was trading up 426.97 points (2.33 per cent) at 18,776.22 and the Nifty was trading up 142.1 points (2.56 per cent) at 5,696.35.

The rally was supported by movement in power, capital goods, banking and metal and which gained over three per cent, though all other sectoral indices were also trading in the green.

Top five Sensex gainers were BHEL, Tata Power, Sterlite, SBI and L&T.

The BSE Sensex opened the day at 18,412, while the NSE Nifty opened at 5,577.

European markets were up after reports said that the region's policy makers will unveil a financial bailout programme for Spain next week. Asian markets were also up.