Firm European trends amid renewed buying by foreign funds in sectors like auto, consumer durables and realty also boosted the market sentiment, brokers said.

The Reserve Bank of India in its third bi-monthly monetary policy today kept the key policy rate unchanged but slashed statutory liquidity ratio (SLR) by 0.5 percent to unlock about Rs 40,000 crore into the system.

Also, it reduced the ceiling of banks total holdings of SLR securities under the held to maturity to 24 percent from 24.5 percent of net demand and time liabilities.

The BSE 30-share Sensex resumed strong but fell back by over 160 points at 25,562.36 after morning session when the RBI announced its monetary policy review.

Later, it bounced back after mid-session and closed up by 184.85 points, or 0.72 per cent, at 25,908.01. In straight two days, Sensex has now spurted by 427.17 points or 1.68 percent.

M&M, ONGC, Tata Motors and HDFC led the recovery.

Similarly, the wide-based 50-issue CNX Nifty of the NSE also gyrated in a range of 7,752.45 and 7,638.05 before ending at 7,746.55, a net gain of 62.90 points or 0.82 percent.

"RBI credit policy was a positive for markets. The cut in SLR by 50 bps will provide sufficient liquidity," said Kiran Kumar Kavikondala, Director & CEO, WealthRays Securities.

Although RBI kept the benchmark repurchase rate at 8 percent unchanged, some feel rate cuts could come sooner. "We note the change in the RBI's commentary compared to its explicit hawkish stance earlier this year, at least up until the April 2014 policy. We continue to expect a cumulative 50bps easing in policy rates by end-2014." said Barclays.

Index-based shares like Infosys, HDFC Bank, Sun Pharma, ITC, Bajaj Auto, Tata Steel, Sesa Sterlite and Hindalco closed with sharp to marked gains and supported the Sensex rise.

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