MUMBAI The BSE Sensex rallied 1.7 percent on Tuesday to its highest close in almost six weeks, as banks and automakers led a wave of positive sentiment caused by easing domestic inflation and above-forecast GDP growth in fellow emerging economy China.
Investors piled into top carmaker Maruti Suzuki (MRTI.NS) and reversed recent falls in index heavyweight Reliance Industries (RELI.NS), powering a rally that began the day before after data showed inflation at a two-year low in December.
"The expectations are there for good news from the central bank, and there's good news from overseas on the wider front," said Ketan Dedhia, managing director of Mumbai-based Nalanda Securities.
"There has been a good deal of foreign institutional investor buying today."
Maruti shares closed up 10 percent at 1,108.35 rupees, after rising as much as 11 percent, after the company said it would raise prices across its model range to offset a rise in commodity costs.
Reliance, which had fallen 4.7 percent in the previous four sessions, closed up 4.1 percent at 742.05 rupees.
Construction and real estate companies DLF (DLF.NS) and Jaiprakash Associates (JAIA.NS) gained strongly after investors sensed that retreating inflation could prompt a cut in interest rates, which would ease pressure on credit-heavy industries.
Debt-laden DLF, India's biggest developer, ended up 2.5 percent at 198.15 rupees, while infrastructure and cement company Jaiprakash closed at 63.55 rupees, a rise of 5.7 percent.
India's headline inflation slowed in December to 7.47 percent as food price pressure eased dramatically, but the central bank is expected to leave interest rates on hold next week.
The main 30-share BSE index climbed 1.71 percent, or 276.69 points, to 16,466.05, with all but six of its components advancing. It was the highest close since December 8.
Carmakers, which have seen sales hit particularly hard by a series of interest-rate increases by the Reserve Bank of India to fight inflation, led gains all day, with the sector index ending up 2.6 percent.
Tata Motors (TAMO.NS) closed up 1.7 percent after rising as much as 3.6 percent on news that global sales rose 27 percent in December, while shares in domestic rival Mahindra & Mahindra (MAHM.NS) closed up 2.6 percent at 705.60 rupees.
Shares in India mirrored gains across Asia, as bourses advanced on slightly better-than-expected Chinese economic growth data that soothed investor worries the euro zone debt crisis was slowing global activity.
China, a key trading partner with India, said gross domestic product grew at its weakest in 2-1/2 years in the fourth quarter, slowing to an annual rate of 8.9 percent, but beating expectations for an 8.7 percent rise.
Shares in cash-strapped airline sector rose ahead of a crucial meeting of a group of ministers in New Delhi on Tuesday evening to discuss allowing foreign carriers to invest in Indian airlines.
Kingfisher Airlines (KING.NS), which has been struggling to pay salaries and make interest payments, closed up 4.8 percent at 25.10 rupees, while rivals SpiceJet (SPJT.BO) and Jet Airways (JET.NS) ended up 10.1 percent and 10.3 percent respectively.
Tata Consultancy Services Ltd (TCS.NS) closed down 0.5 percent after moving in a tight range ahead of the company's December quarter results.
The top Indian software services provider is expected to post a 23 percent rise in net profit on a weaker rupee, but will be watched for any cut in outlook guidance after industry bellwether Infosys (INFY.NS) cut its revenue outlook last week.
Smaller rival HCL Technologies Ltd (HCLT.NS) ended the day up 4.8 percent at 425.40 rupees after the company said its net profit for the quarter to end-December rose 43 percent.
The 50-share NSE index closed up 1.92 percent at 4,967.30 points. In the broader market, gainers outpaced losers by a ratio of more than 2 to 1 on total volume of about 752 million shares.
STOCKS THAT MOVED
* Reliance Communications (RLCM.NS) firmed as much as 5.7 percent after the No. 2 mobile operator by subscribers said it has secured loans from Chinese banks to refinance $1.18 billion worth of foreign currency bonds.
* Reliance Industrial Infrastructure (REII.NS) rallied as much as 4.5 percent after the company posted a 22.5 percent rise in December quarter net profit.
* ING Vysya Bank (VYSA.NS) rose as much as 3.8 percent after the private sector lender posted a 44 percent rise in quarterly net profit.
TOP THREE BY VOLUME
* Suzlon Energy (SUZL.NS) on 29.7 million shares
* Tata Motors on 23.8 million shares
* Unitech (UNTE.NS) on 22.6 million shares
(Editing by Ranjit Gangadharan)