Sensex gained 257 points on expectation that the Reserve Bank of India will reduce key bank rates after inflation based on the wholesale price index eased to a five-month low to 6.16 per cent in December.
The RBI will meet on January 28 for the third quarter review of Monetary Policy.
The benchmark index opened on a positive note at 21,091 against the previous close of 21,033. It touched a high of 21,303 and low of 21,091 before closing at 21,289. The BSE recorded a turnover of Rs 1,876 crore against Rs 1,686 crore on Tuesday.
On NSE, the Nifty was up 79 points at 6,321.
Bank and capital goods company stocks gained after inflation data showed a drastic fall. YES Bank rose 2 per cent to Rs 353 after the bank reported its net profit jumped 21 per cent to Rs 416 crore on 17 per cent growth in net income at Rs 1,053 crore in the December quarter.
Bank of Baroda gained four per cent to Rs 643 as the bank during market hours said that the board approved an interim dividend of Rs 11 a share. The bank has fixed January 29 as the payment date.
Other PSU bank stocks, State Bank of India, Canara Bank, Union Bank of India, Bank of India and Punjab National Bank moved up between one and four per cent.
Major gainers for the day include Max India (10%), Future Retail (6%), Unitech (5%), Bank of India (4%), Crisil (4%), BoB (4%) and Century Tex (3%).
Prominent losers were Prestige Estates (-3%), Mcleod Russel (-3%), Nestle India (-2%) and Amara Raja (-2%).