Indian shares extend gains to 2.5% on Friday and are heading towards their biggest monthly gains since Jan, after European leaders unveiled a plan to address Europe’s distressed banking sector, easing some of the concerns about the region.

India published draft guidelines on Thursday to implement rules that target tax evasion but have provoked an outcry among foreign investors at a time when the country needs capital inflows.

Also a strong rebound in the rupee now at 56.02 adds investor comfort, had closed at Rs56.80.

Also Morgan Stanley raised Indian stocks to “equalweight” after being “underweight” since the first quarter of 2011, citing historically attractive valuations.

The upgrade came at a time when Prime Minister Manmohan Singh took charge of finance ministry on Tuesday and said will take steps to revive economic growth.

India’s benchmark index gains 2.42% to be at 17403.46, highest level since 2 May.

The 50 share NSE index also adds 2.36%.

Banks, infrastructure shares were leading the gains while some auto shares gained after announcement of reduction in petrol prices by Rs2.46 per litre.

ICICI Bank rises 4.4%, State Bank of India gains 3.2% while Larsen & Toubro rose 4%.

Bajaj Auto advances 1.3% while Hero MotoCorp adds 3.13%.

Maruti Suzuki India gains 4.5% after Jefferies upgraded it to “buy” from “hold” and raised target price to Rs1,446 from Rs1,398.