The BSE benchmark today snapped a five-day losing streak by closing 88 points higher as hopes of a rate cut by RBI as early as January 2013 got a boost with headline inflation declining to 7.24 per cent in November.
After losing 258 points in past five sessions, the Sensex bounced back from two-week lows today to end at 19,317.25, registering a gain of 87.99 points or 0.46 per cent.
After remaining listless in early trade, the 30-share index assumed direction after data showed inflation declined to 7.24 per cent in November from 7.45 per cent in October.
Market participants were expecting 7.6 per cent number for November 2012 data, traders said.
"WPI inflation now looks on track to fall below 7 per cent by next March, opening up space for RBI to trim policy rates...policy rate now looks set to be reduced in January," said BNP Paribas, Chief Asia Economist Richard Iley.
After rebound in recent IIP data and an uptick in retail-level inflation, hopes of a rate cut in December 18 RBI meeting had dimmed.
Buying ativity was led by SBI, ICICI Bank, Tata Motors, L&T, Sterlite and Hindalco. Gains in RIL, TCS and ITC also helped Sensex cement gains amid volatile phases of trades.
Investors were also enthused by Finance Minister P Chidambaram's comment that government will take some more steps in the next few weeks to revive the economy and boost investment sentiments.
Similarly, the wide-based 50-issue Nifty of the NSE also
recovered by 28.10 points or 0.48 per cent at 5,879.60.
Brokers said purchases in metals stocks were supported by reports of strong Chinese manufacturing data. The BSE-Metal with a rise of 2.31 per cent was the top gainer among sectors.
BSE Banking index was up 1.27 per cent, followed BSE Realty (1.01 per cent) and BSE IT index (0.73 per cent).
Outside indices, fertiliser scrips notched up gains after Cabinet approved long-pending urea investment policy.
Foreign institutional investors bought shares worth a net Rs 1,256.57 crore yesterday as per provisional data from the stock exchanges.
Globally, Asian stocks ended mixed amid Chinese stocks flared up after positive economic data. Key benchmark indices in China, Hong Kong and Singapore rose while indices in Hong Kong, Taiwan and South Korea fell in 0.05-0.75 per cent range.
European markets also showed a mixed trend as indices in France (CAC) and the UK (FTSE) eased marginally while Germany's DAX index inched up by 0.26 per cent.