By Abhishek Vishnoi
MUMBAI (Reuters) - The BSE Sensex rose almost 2 percent on Tuesday, snapping a five-day losing streak to hit their highest close in nearly three years, as lenders surged after the central bank raised interest rates in line with expectations.
The Reserve Bank of India raised the repo rate by 25 basis points, its second consecutive monthly hike, while bringing down short-term interest rates. Some traders had feared the central bank would raise interest rates more aggressively to combat inflation.
Investors now await confirmation the U.S. Federal Reserve will stay on course with its $85 billion monthly asset purchase programme at its two-day meeting ending on Wednesday. Most predict the U.S. central bank will delay any stimulus tapering until at least March.
"This is more of a risk-on rally, which is ignoring the fact that RBI may hike rates further as growth picks up amid inflation," said Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance.
The Sensex rose 1.74 percent, or 358.73 points, to end at 20,929.01, marking its highest close since November 2010.
The Nifty rose 1.96 percent, or 119.80 points, to end at 6,220.90, closing above the psychologically important 6,200 level.
The NSE bank index jumped 4.4 percent, marking its biggest single day percentage gain since September.
In other rate-sensitive sectors, Bajaj Auto Ltd (NSI:BAJAJ-AUTO) rose 1.1 percent, while Hero MotoCorp Ltd (NSI:HEROMOTOCO) gained 3 percent.
Maruti Suzuki India Ltd (NSI:MARUTI.NS - News) jumped 8.1 percent, marking its biggest daily percentage gain since January 2012, after the country's biggest carmaker reported July-September net profit tripled from a year earlier, beating estimates.
Cairn India Ltd (NSI:CAIRN.NS - News) rose 2.7 percent after Brent crude oil futures LCOc1 held within sight of a near one-week high as a sharp drop in Libyan oil exports rekindled worries over supply.
(Editing by Anupama Dwivedi)