Higher Asian cues also boosted the market sentiment.
Foreign institutional investors (FIIs) bought shares worth a net Rs 384.89 crore yesterday, as per provisional data from the stock exchanges.
The Sensex resumed higher at 21,237.96 and hovered in a range of 21,286.53 and 21,204.82 before quoting at 21,283.75 at 1030 hrs, showing a gain of 78.70 points, or 0.37 per cent, from its last close.
The NSE Nifty also moved up by 21.40 points, or 0.34 per cent, to 6,325.35 at 1030 hrs.
Major gainers were Tata Motors (up 2.48 per cent), Sesa Sterlite (2.09 per cent), Tata Steel (1.99 per cent), ICICI Bank (1.91 per cent), Maruti Suzuki India (1.71 per cent), State Bank of India (1.41 per cent) and Larsen & Toubro Ltd (1.36 per cent).
Asian stocks edged higher as China's money-market rates dropped after the Central Bank pumped funds into the financial system.
Key benchmark indices in China, Japan, Singapore, Hong Kong, Taiwan and South Korea were up 0.08-1.53 per cent.