Rising for the third session, the benchmark Sensex on Tuesday closed 103 points up at a two-week high after an uptick in manufacturing sector growth and signs of pickup in auto sales outweighed concerns of a poor monsoon.
Buying by foreign funds amid positive global cues also boosted the domestic sentiment. The decision to increase diesel, petrol and non-subsidised LPG prices after hiking railway freight and fare was interpreted by investors as the government's resolve to take tough decisions, said brokers.
Shares of auto, metal, capital goods and realty attracted buying while pharma, IT and refinery sectors ended lower.
The BSE 30-share Sensex resumed better and moved in a narrow range of 105 points before concluding at 25,516.35, a net gain of 102.57 points or 0.40 per cent. In three days so far, it has flared up by 453.68 points or 1.81 per cent.
The 50-issue CNX Nifty of the NSE also rose by 23.35 points, or 0.31 per cent, to close at 7,634.70.
Dealers said gains were capped as output in eight important infrastructure industries decelerated in May. Also, India's fiscal deficit in the first two months of the current financial year touched Rs 2.4 lakh crore.
Shares of country's largest car-maker Maruti Suzuki climbed 6.01 per cent on strong sales growth in June. Mahindra & Mahindra, another automaker major, surged 4.03 per cent after reporting a marginal increase in total sales in June.
Hindalco Industries also caught buyers' fancy following reports of an upgrade by a rating agency. It ended 6.76 per cent higher.
India's manufacturing sector growth in June expanded at the fastest pace since February, supported by growing order flows, especially from overseas, an HSBC survey said today.
On the global front, growth in China's manufacturing in June indicating arrest in slowdown in the world's second-biggest economy and firm European opening ahead of a slew of economic reports boosted FII buying.
Foreign Portfolio Investors (FPIs) had bought shares worth a net Rs 1,288.16 crore yesterday.
Refinery stocks, which were in demand at initial stages after the hike in petrol and diesel prices by government, fell back on profit-booking.
Asian stocks closed mixed. Key indices from China, Japan and Taiwan closed with gains while those from Singapore and South Korea settled with losses. Hong Kong market was closed on Tuesday.
European markets were trading firm. France's CAC was up 0.56 per cent, Germany's DAX 0.26 per cent and the UK's FTSE 0.48 per cent.
Jignesh Chaudhary, Head of Research, Veracity Broking Services said: "Bluechips closed higher with help of FIIs."
Amid mixed cues from both domestic & global front, Indian bourses have been showing resilience so far and we expect this bias to continue in the coming days, said Jayant Manglik, President-retail distribution, Religare Securities.
Fifteen scrips out of the 30-share Sensex pack ended higher while remaining 15 finished with losses.
Major Sensex gainers include Hindalco (6.76 per cent), Maruti Suzuki (6.01 per cent), Tata Motors (4.59 per cent), M&M (4.03 per cent), Tata Steel (2.47 per cent), HUL (2.22 per cent), Sesa Sterlite (1.42 per cent), Larsen & Toubro (1.40 per cent) and ICICI bank (1.36 per cent).
However, TCS fell by 1.20 per cent, followed by Wipro 1.16 per cent, Sun Pharma 1.00 per cent, HDFC 0.91 per cent and Infoys 0.76 per cent.
Among the S&P BSE sectoral indies, Auto rose by 3.24 per cent, followed by Metal 2.03 per cent, Capital Goods 1.27 per cent, Realty 1.03 per cent and Consumer Durables 0.98 percent.
Market breadth remained positive as 1,905 stocks finished with gains while 1,146 stocks ended lower.