Besides, a firming overseas trend boosted trading sentiments here as soft US jobs related data cemented hopes that the Federal Reserve would not again trim its economic stimulus anytime soon, traders said.
After losing 93 points last week, stocks were off to a flying start and the BSE Sensex consolidated gains as the day progressed to end higher by 375.72 points, or 1.81 per cent, at 21,134.21. This is the best gain since 387.69-point rise on November 25, 2013.
Investor wealth rose Rs 1 lakh crore today across market.
Infosys Ltd, Tata Consultancy Services (TCS) and Reliance Infrastructure Ltd led 21 BSE Sensex gainers higher while Sun Pharmaceuticals Industries, Hindustan Unilever (HUL) and Tata Power were among the nine losers.
Brokers said investors bet that RBI Governor Raghuram Rajan will keep interest rates unchanged at the policy review on January 28, helping the benchmark reclaim 21,000-level for the first time since January 1, 2014.
The 50-share NSE Nifty rose 101.30 points, or 1.64 per cent, to end at to 6,272.75. Intra-day, it hit high of 6,288.20. Also, SX40 index of MCX-SX gained 187.24 points to close at 12,610.58.
"Stock specific buying was prominent keeping the trend upwards. Positive global cues boosted the sentiment," said Nidhi Saraswat, Senior Research Analyst, Bonanza Portfolio.
Rising consumer price index based inflation data is expected to bolster the case for RBI to maintain a status quo on rates after tepid macroeconomic signals, analysts said.
The BSE IT index, which rose 2.92 per cent, was the biggest gainers among sectoral indices as Infosys and TCS galloped more than three per cent each.
The Oil & Gas index was among the top three sectoral gainers after shares of ONGC rose for the third straight session and ended 2.94 per cent higher after government notified pricing guidelines, while RIL spurted 2.58 per cent.
Banking, capital goods and auto also saw heavy buying.
Dipen Shah, Head- Private Client Group Research, Kotak Securities
Markets rose sharply on Monday likely buoyed by the weak payroll data in US, which re-ignited optimism on the Fed taper program. Expectations on the CPI inflation data which is due post-market hours, also kept the markets up.
If the CPI inflation moderates significantly as compared to the previous month, it may have a bearing on the RBIs monetary policy decision later this month. The IIP has already come below expectations at a -2.1% for the month of December, indicating continual stress on the economy.
However, if it fails to fall along expected lines, it may be negative from the stock markets perspective.
* BSE index gains 1.81 pct, NSE up 1.64 pct
* Shares mark biggest single day gains of the year
* BSE IT index up nearly 3 pct
BSE Sensex posts biggest single-day gain of 2014, Infosys, TCS share prices lead in gains
(Reuters) - Indian shares rose nearly 2 percent to post their biggest daily gains this year on expectations the central bank will hold interest rates at the current levels and the U.S. Federal Reserve will keep its monetary policy loose for longer.
A second consecutive month of output contraction is likely to weigh when the central bank meets for its rate review on Jan. 28.
Data later in the day is expected to show consumer prices eased in December, helped by waning food prices, solidifying the case for the Reserve Bank of India to keep interest rates on hold after data on Friday showed industrial output unexpectedly contracted in November.
"The near-term outlook for the market is firm. FIIs are continuously buying and supporting the rally. However, at the higher-levels, there could be some profit-taking. But the undercurrent remains positive," said Suresh Parmar, head, institutional equities at KJMC Capital Markets.
"Markets expect RBI may keep rates on hold because of slow growth, which would be another positive in the near term," he said.
Foreign investors bought shares worth 681.6 million rupees ($11 million) on Friday, provisional exchange data showed.
Software services exporters lead gains with the BSE IT Index up 2.92 percent after Infosys reported better-than-expected quarterly results on Friday. .
Banking stocks rose sharply, with State Bank of India gaining more than 2 percent and ICICI Bank up 3 percent. The bank index gained 2.04 percent.
The benchmark index closed 1.81 percent higher at 21,134.21, marking its biggest single-day gain since Nov. 25.
The broader NSE index ended up 1.64 percent at 6,272.75, its biggest single-day gain since Dec. 20.
Tata Motors rose 2.5 percent after key unit Jaguar Land Rover sold a record volume of vehicles last year. .
Shares of oil and gas companies including Reliance Industries and Oil and Natural Gas Corp gained after the government officially notified a decision taken last year to change the pricing formula for domestic natural gas from April 1, removing the uncertainty on what effectively constitutes a price hike..
Shares in Ranbaxy Laboratories were sharply down, ending 5.4 percent lower, after the Indian drug maker said the U.S. Food and Drug Administration (FDA) has raised concerns about the manufacturing practices at one of its facilities. .
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