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The 30-scrip Sensitive Index (Sensex) of the BSE breached the 32,000 points-mark for the first time and registered a record high of 32,091.52 points during intra-day trade on Thursday.
The wider Nifty of the National Stock Exchange (NSE) recorded a new intra-day high of 9,897.25 points.
Market observers said US Federal Reserve Chairman Janet Yellen's comments on a more gradual tapering programme to the US Congress acted as an initial trigger for the market rally.
Yellen's comments assume significance as a faster US rate hike cycle will drive away foreign investors from Indian equity markets.
Apart from global cues, domestic macro-economic data points -- Consumer Price Index (CPI) and Index of Industrial Production (IIP) -- released after market hours on Wednesday raised investors' hopes for a cut in key lending rates by the Reserve Bank of India (RBI) in its monetary policy review slated for August 2.
India's annual retail inflation eased to a record low of 1.54 per cent during June, lowest since 1999, while the country's factory output growth slowed to 1.7 per cent in May.
However, profit bookings and caution ahead of IT major Tata Consultancy Services' (TCS) quarterly numbers capped gains.
The Sensex, which opened at 31,896.23 points, closed at 32,037.38 points -- up 232.56 points, or 0.73 per cent, from its previous close at 31,804.82 points.
The sensitive index recorded a low of 31,892.63 points during the intra-day trade.
"Markets zoomed higher on Thursday to touch new life highs. Broad market indices like the BSE mid-cap and BSE small-cap indices gained less, thereby underperforming the main indices," Deepak Jasani, Head of Retail Research, HDFC Securities, told IANS.
"Major Asian markets have ended on a positive note. European indices like DAX, CAC 40 and FTSE 100 traded higher."
On the currency front, the rupee strengthened by 14 paise to 64.45 to a US dollar from its previous close of 64.59 to a greenback.
In investments, provisional data with the exchanges showed that foreign institutional investors (FIIs) sold stocks worth Rs 59.15 crore while domestic institutional investors (DIIs) invested Rs 279.13 crore.
"Indian equity markets closed at record highs, as a rally was fuelled by a strong handover from the Wall Street, apart from hopes of a rate cut by the central bank on the back of yesterday's inflation numbers," said Dhruv Desai, Director and Chief Operating Officer of Tradebulls.
"FMCG, healthcare, metals, consumer durables, auto, capital goods all closed in the green, whereas oil and gas ended in the red. Top gainers in NSE were Yes Bank, ITC, Hindalco, on the other hand IOC, ONGC, Infratel were among the top losers."
Sector-wise, the S&P BSE banking index gained 244.49 points, the capital goods index by 180.72 points and the FMCG index by 168.45 points.
On the other hand, oil and gas index declined by 40.03 points.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)