Wholesale price index-based inflation fell to (-)4.05 percent in July, from (-)2.40 percent in June. The latest set of numbers followed data earlier this week which showed that retail inflation fell in July, which rekindled hopes of a possible rate reduction from RBI.

"Indices staged a stellar show on the back of buying interest till the last leg of trade. July WPI contracted for ninth straight month and cooling of CPI inflation fuelled the rate cut expectations that RBI governor may cut rates before its policy in September," said Gaurav Jain, Director, Hem Securities.

A pause in rupee's slide contributed to the upside. Sentiment went up a few notches after the MSCI's quarterly index rejig, which is expected to lead to more inflows into Indian markets. The rally gathered steam after it became clear that the government is determined to stick to its April 2016 GST rollout deadline despite protests from the Opposition. The 30-share barometer hit the day's high of 28,100.64, before settling at 28,067.31, up 517.78, or 1.88 per cent, its biggest single-day rise since January 20.

The NSE Nifty retook 8,500 to hit a high of 8,530.10 and ended the day at 8,518.55, higher by 162.70 points, or 1.95 percent, its biggest single-day percentage gain since January 15.

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