Equity benchmark Sensex notched up smart gains on Tuesday after a two-day losing run as investors accumulated IT, finance and energy stocks in the wake of encouraging retail inflation data.

Retail inflation dipped below the RBI's upper tolerance level of 6 per cent for the first time in 11 months in November as softening prices of food items brought relief, as per official data released post market hours on Monday.

However, India's industrial production contracted by 4 per cent in October, the sharpest fall in 26 months, mainly due to a decline in output of manufacturing and subdued performance of mining and power generation sectors.

After a subdued opening, the 30-share BSE Sensex gained momentum as the session progressed to close 402.73 points or 0.65 per cent higher at 62,533.30.

Similarly, the broader NSE Nifty advanced 110.85 points or 0.60 per cent to end at 18,608.

IndusInd Bank topped the Sensex gainers' chart, spurting 2.46 per cent, followed by Bajaj Finance, Infosys, HCL Tech, M&M, TCS, Tech Mahindra and Bharti Airtel.

Only five counters closed in the red -- Tata Steel, Nestle India, Maruti Suzuki, Titan and HUL, slipping up to 0.54 per cent.

"Markets were on a firm footing on the back of short covering as retail inflation easing to 11-month low raised hopes that the rate hike regime could slow down and take a pause going ahead.

"Also, overnight gains in the US markets further aided the local market sentiment, which had slipped into a range-bound mode over the past few sessions," said Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities Ltd.

Vinod Nair, Head of Research at Geojit Financial Services, said PSU banks led the rally while IT snapped its losing streak on bargain buying.

"The US inflation figures, which are due before the Fed announcement, will provide an indication of the Fed's policy stance," he added.

In the broader market, the BSE smallcap gauge rose 0.40 per cent and the midcap index gained 0.25 per cent.

Among sectors, telecommunication climbed 1.48 per cent, teck jumped 1.32 per cent, IT 1.11 per cent and financial services 0.72 per cent.

FMCG, metal, oil & gas, realty and consumer durables were the laggards.

Global equities were mixed ahead of US inflation data and Federal Reserve's interest rate decision.

Elsewhere in Asia, equity markets in Tokyo and Hong Kong ended in the positive territory, while Shanghai and Seoul settled lower.

Equity exchanges in Europe were trading in the green in mid-session deals. The US markets had ended higher on Monday.

International oil benchmark Brent crude climbed 1.60 per cent to USD 79.24 per barrel.

The rupee declined by 36 paise to close at 82.87 (provisional) against the US dollar on Tuesday, weighed down by persistent foreign capital outflows.

Foreign Institutional Investors (FIIs) remained net sellers in the capital markets on Monday as they offloaded shares worth Rs 138.81 crore, according to exchange data.

Except for the headline, this story has not been edited by The Telegraph Online staff and has been published from a syndicated feed.