Sustained foreign fund inflows and positive global cues also helped firm up domestic sentiment.
Strong buying was seen across-the-spectrum as all 12 sectoral indices closed with gains of upto 2 per cent. Metal, healthcare, power, capital goods, auto, FMCG, banking and consumer durable segments logged the biggest rise.
The BSE 30-share barometer resumed better in line with firm Asian cues. It rallied further to a fresh historic intra-day high of 25,864.53. It settled at a new all-time closing high of 25,841.21, logging a rise of 324.86 points or 1.27 per cent.
In straight four sessions of gains, the Sensex has zoomed by 778.54 points or 3.11 per cent.
The broad-based 50-issue CNX Nifty of the NSE flared up by 90.45 points, or 1.18 per cent, to log its new closing peak of 7,725.15. It touched an intra-day peak of 7,732.40. Nifty has gained about 232 points in four days so far.
Foreign investors continued to play a key role behind the pre-budget rally. They had picked up shares worth Rs 856.35 crore yesterday, as per provisional data.
"The participants responded positively to the statement made by the Finance Minister that the government would take bold decisions in the forthcoming Budget (July 10) to revive the economy," said Jayant Manglik, President-retail distribution, Religare Securities.
Besides, an uptick in manufacturing sector growth in June and signs of pickup in auto sales amid firming trend in the global markets too added to the optimism, he added.
Globally, Asian stocks ended higher after reports showing manufacturing expansion in the US pushed American stocks to records. European markets were also trading higher.