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.
ICICI Bank Ltd
Among state-owned banks, State Bank of India Ltd
In other rate-sensitive sectors, Bajaj Auto Ltd
Real estate developers, DLF Ltd
Maruti Suzuki India Ltd
Cairn India Ltd
Among stocks that fell, Ranbaxy Laboratories Ltd
(Editing by Anupama Dwivedi)