The Sensex on Monday closed above the 60000 level on a growing appetite for risk among investors who chased banking, IT, metal and energy stocks. The rally may wobble as retail inflation remained elevated at 7 per cent in August raising the prospects of another sharp rate hike by the Reserve Bank of India (RBI) later this month.

Rising for a third straight session, the 30-share index settled higher by 321.99 points or 0.54 per cent at a three-week high of 60115.13. The Nifty was inching closer to the psychological 18000 mark as it rose 103 points or 0.58 per cent to end at 17936.35.

Market circles said that a combination of soft crude oil prices, continued interest from foreign portfolio investors (FPIs) and resilient economic activity are some of the reasons behind the current rally. Provisional data from the bourses showed that the net purchases by foreign investors on Monday stood at over Rs 2,000 crore. So far in September, they have bought stocks worth nearly Rs 8,000 crore after ploughing Rs 51,200 crore last month.

The positive sentiment on the stock markets got reflected on the rupee which closed at 79.52, a gain of 6 paise over the previous close of 79.58 against the dollar. Its gain was also on account of a weak global dollar as shown by the dollar index which was trading at around 108 levels after reaching multi-decadal highs of 111 recently.

The Sensex opened in the green at 59912.29 and touched a high of 60284.55 — a rise of 491 points. It gave up some of these gains to close higher by 321.99 points. In the three-day rally, the index has advanced 1,086 points, while the Nifty has gained nearly 312 points. Market circles cautioned that disappointing inflation and industrial output numbers after trading hours may affect the sentiment on Tuesday. Investors are also awaiting the August CPI data in the US to be released on Tuesday.

The level of inflation may determine whether the US Fed goes for another 75 basis points rise in the interest rate or tones it down to half a percentage point later this month. “Domestic economy is witnessing strong vigour and the same is assisting a steady growth in Indian equities. A 15.5 per cent year-on-year increase in bank credit during August suggests that the economy is recovering rapidly,” Vinod Nair of Geojit Financial Services, said.