Snapping five-session losing streak, the benchmark BSE Sensex on Tuesday surged by 221 points with rate sensitive stocks attracting buying support in the aftermath of retail inflation easing to 30-month low of 7.31 per cent.
Brokers said softening of inflation has sparked off hope that the Reserve Bank will cut interest rate at its policy review next month.
While retail inflation in June touched its lowest mark at 7.31 per cent since January 2012, the wholesale price based index slid to four-month low of 5.43 per cent mainly because of easing prices of vegetables.
Value-based buying in many blue-chip stocks, which became attractive after recent losses, also helped the the barometer to close higher, brokers said.
The 30-share Sensex gained 221.67 points, or 0.89 per cent, to end the day at 25,228.65.
The surge comes for index comes after losing 1,093 points in the previous five sessions.
The broad-based National Stock Exchange index Nifty reclaimed the 7,500-mark by jumping 72.50 points, or 0.97 per cent, at 7,526.65.
Firm Asian markets, mixed European opening and record closing on US markets on better-than-expected earnings by Citigroup also helped boost investor sentiment in domestic market.
Major gainers were BHEL at 4.31 per cent, SBI 4.43 per cent, L&T 2.21 per cent, Mahindra and Mahindra 2.59 per cent, Axis Bank 2.89 per cent, Coal India 1.52 per cent, GAIL 1.28 per cent, ONGC 2.49 per cent, RIL 1.20 per cent, ICICI Bank 3.33 per cent, Tata Steel 2.92 per cent and Tata Motors 1.37 per cent.
Consumer durables index outshined other sectors. The BSE consumer durables sector index gained the most by rising 2.84 per cent, followed by banking sector index (up 2.64 per cent, PSU index (2.42 per cent), capital goods index (2.30 per cent), realty index (2.37 per cent), metal index (1.33 per cent) and oil and gas index (1.64 per cent).
FMCG and IT sector index, however, ended in the negative territory.
The mid cap index also turned active with buying seen in several of its constituents. Midcap index up 2.06 per cent and smallcap up 2.279 per cent.