The Sensex and Nifty closed at their highest in nearly three months on Wednesday, as financial stocks continued to rally on the back of quarterly results, while the sentiment was aided by optimism ahead of the federal budget.

The broader NSE index closed up 126.95 points or 1.5 per cent at 8,602.75, while the benchmark BSE index ended 332.56 points or 1.21 per cent higher at 27,708.14.

Both indexes closed their highest since November 1, 2016 and recorded their biggest single-day percentage gain since December 27, 2016.

Among BSE sectoral indices, banking index gained the most by 2.33 per cent, followed by consumer durables 2.26 per cent, oil & gas 1.75 per cent and PSU 1.64 per cent. On the other hand, IT index was down 0.23 per cent, TECk 0.08 per cent and power 0.05 per cent.

Top five Sensex gainers were HDFC (+4.31%), Adani Ports (+3.61%), Hero MotoCorp (+3.42%), Axis Bank (+2.76%) and Coal India (+2.13%), while the major losers were Wipro (-1.59%), Bharti Airtel (-1.52%), Reliance (-1.06%), Sun Pharma (-0.94%) and Infosys (0.89%).

Strong earnings from lenders such as HDFC Bank this week have raised optimism that the impact of India's move to ban higher-value currency notes could be less than expected.

Still, analysts expect Union Budget, due on February 1, to provide incentives to some sectors to help support economic growth.

“Markets are generally getting excited about results declared by some finance companies as the numbers have not shown any major impact of demonetisation,” said Dipen Shah, senior vice president, public client group research, Kotak Securities.

Financials contributed to a majority of the gains on the NSE index, led by a 3 per cent rise in Housing Development Finance Corp. Indian Overseas Bank and Bharat Financial Inclusion Ltd rose as much as 5.71 per cent and 7.82 per cent, respectively, after reporting results late on Tuesday.

Biocon Ltd rose as much as 5.21 per cent to its highest since January 12 after posting a 65 percent jump in third-quarter consolidated profit on Tuesday.

Among decliners, Bharti Airtel Ltd fell as much as 3.63 per cent after the company had on Tuesday reported its lowest profit in four years.

Asian stocks edged up to a three-month high on Wednesday, helped by a firm finish on Wall Street, while a rebound in the dollar looked vulnerable as some investors grew sceptical about US President Trump’s policies translating into further gains.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.1 per cent to its highest levels since late October. Australia and Japan led regional stock markets higher.

A report by SMC Global said: "Asian stocks rallied following strong overnight cues from the Wall Street as stocks in Asia joined a global equities rally as corporate results reignited investors’ optimism in economic growth. The European and US markets were up. US indices surged the most in three weeks on Tuesday driven by robust corporate earnings and investors welcomed US President Donald Trump's eagerness to deliver on his campaign promises. Sales of previously owned homes in US slipped in December, hurt by a lack of available homes. The decline, which was slightly more than economists had predicted, took the figure off a multi-year high reached in the previous month. The National Association of Realtors said existing home sales fell 2.8 per cent in December to reach an annual pace of 5.49 million units. November's pace was revised slightly higher, to 5.65 million units."

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