After opening on a strong note at 19,693.30 points, the BSE benchmark continued its upward march to touch session's high of 19,756.68. It finally settled with a gain of 133.43 points, or 0.68 per cent, at 19,714.24 points, its highest closing since January 6, 2011.
Yesterday, Sensex closed at 20-month high, fuelling expectations that stocks may breach life-time high soon.
"Market can touch an all-time high (21,206.77) before March," said Motilal Oswal Financial Services CMD Motilal Oswal.
A strong upmove in shares of ICICI Bank, SBI and HDFC, supported by rise in RIL and ONGC and auto pack, including Bajaj Auto, Maruti Suzuki and Tata Motors, helped Sensex log gains today.
Similarly, the 50-scrip NSE index Nifty, which breached the 6,000 mark today for the first time in two years, closed at 5,993.25 points -- a rise of 42.40 points, or 0.71 per cent. It had touched the intra-day high of 6,006.05.
Meanwhile, overcoming Republican resistance, the US House of Representatives late yesterday night passed the "fiscal cliff" bill by 257 to 167 votes, ending a dramatic New Year's Day showdown over income taxes and deep federal spending cuts.
"The New Year has begun on a promising note thanks to some positive global factors," said K Subramanyam, AVP Institutional Sales, Asit C Mehta Investment Intermediates.
Besides, India's manufacturing sector growth improved further in December, registering the fastest pace in 6 months, driven by a strong pick up in new orders, an HSBC survey said.
Overall, around 1,800 stocks rose today on the BSE, pushing up investor wealth up by Rs 50,000 crore.
"Fuelling the rally in the market was expectation that RBI may cut interest rates," said Delhi-based broker Deepka Pahwa. Firm trends in Asian and European markets also boosted the domestic market sentiment.
Globally, Asian stocks ended higher as key indices in Hong Kong, Singapore, South Korea and Taiwan firmed up by 1.04-2.89 per cent. China and Japan markets were closed today.
European stock markets were also trading higher in their afternoon deals following events in US. Key indices in France, Germany and London moved up by 1.59-2.04 per cent.
Coming back to India, with manufacturing PMI up and prices trending down, experts said data augurs well for the economy. "PMI data suggest that the manufacturing sector after stabilising between July and October began to improve from November, and inflation pressures remain under check, a good start to new year," said Sonal Varma, India economist, Nomura.
Meanwhile, Finance Minister P Chidambaram today said the government is considering steps to reduce gold import by making it more expensive, which is a major constituent of country's rising current account deficit (CAD).
Traders said moves to stem gold demand are structurally positive for the economy's fiscal health.
In all, 23 out of 30 Sensex-based counters closed with gains. Bajaj Auto was the top gainer with a rise of 3.07 per cent, followed by Maruti Suzuki (2.74 pc), ONGC (2.50 pc), BHEL (2.38 pc), Sterlite Ind (2.19 pc), Gail India (2.02 pc), HDFC (1.54 pc), L&T (1.49 pc), NTPC (1.22 pc), ICICI Bank (1.19 pc), SBI (0.91 pc) and RIL (0.84 pc).
However, Wipro eased by 0.78 per cent, ITC by 0.61 per cent and M&M by 0.44 per cent.
Kishor P Ostwal, CMD, CNI Research said,"Psychologically, 6000 was big hurdle for the Nifty futures and we closed above 6000 for the first time in nearly last two years."
Among the sectoral indices, the BSE-CD firmed up by 1.65 per cent, followed by BSE-CG (1.40 pc), BSE-Oil&Gas (1.29 pc), BSE-PSU (1.02 pc), Bankex (0.96 pc) and BSE-Auto (0.92 pc).
The total turnover shot up further to Rs 2,510.03 crore from Rs 1,860.19 crore yesterday. FIIs bought shares worth a net Rs 665.05 crore yesterday, as per provisional data from stock exchanges.