Auto stocks also drove up the market after encouraging September sales data.
Mumbai: Stock markets after a long weekend started the day on Tuesday with a bang as the Sensex surged 332 points and the Nifty was back on top of 9,800 on optimistic buying ahead of RBI policy review.
Looking good for the third day, the 30-share index advanced 331.56 points, or 1.05 per cent, to 31,615.28.
Auto, metal, consumer durables and realty stocks hit a sweet spot. The gauge had gained 123.91 points in the previous two sessions.
The NSE Nifty perked up 106.80 points, or 1.09 per cent, to 9,895.40.
The central bank's 2-day monetary policy review kicks off on Tuesday and the decision is due on Wednesday. This has led to unabated buying by domestic financial institutions, which added to the positive mood.
Rate-sensitive auto stocks made buyers sit up and take note amid encouraging September sales data. Tata Motors was trading higher by 4.90 per cent at Rs 420.90 and Bajaj Auto was up 1.89 per cent at Rs 3,167 while M&M gained 1.38 per cent to Rs 1,271.
Firm Asian cues reflecting a rally on Wall Street, where all three US indices hit new records following strong economic data, made investors here loosen their purse strings.
US manufacturing activity in September rose to its highest level in 13 years. The deadliest mass shooting in US history, however, brought in a sense of caution, traders said.
Other gainers that supported the key indices include Asian Paints, Tata Steel, Dr Reddy's, Reliance Industries, NTPC, ONGC and Infosys.
Among other Asian markets, Hong Kong's Hang Seng was up 1.62 per cent while Japan's Nikkei surged 0.77 per cent in early session today. Financial markets in China are closed today for a public holiday.
US Dow Jones Industrial Average ended 0.68 per cent higher on Monday.