Buying was strong with 11 of 12 sectoral indices posting gains between 0.17 per cent and 3.33 per cent.
Metal, oil&gas, power, FMCG, IT and capital goods led the surge. Persistent capital inflows from foreign funds into equity market and widespread buying by retail investors boosted the market sentiment, said traders.
India's services sector expanded for the first time in nearly a year during May on rebound in new business orders.
The BSE Sensex resumed higher, but dropped to a low of 24,644.88. It later recovered sharply to settle at its new closing high of 25,019.51, a rise of 213.68 points or 0.86 per cent. It breached previous closing peak of 24,858.59 hit on June 3.
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The NSE 50-share Nifty also flared up by 71.85 points, or 0.97 per cent, to end at new peak of 7,474.10 -- surpassing its June 3 closing of 7,415.85.
There is growing speculation that the European Central Bank (ECB) will ease monetary policy later today to support a fragile recovery, said traders.
Sensex-based counters like Tata Motors, Sesa Sterlite, ONGC, Infosys, HUL, RIL, ITC, Tata Steel, Hindalco, TCS, HDFC, Axis Bank, Tata Power, Wipro, Hero MotoCorp and Gail closed with sharp to marked gains.
Banking stocks had a forgettable day as shares like ICICI Bank and HDFC Bank saw profit-taking.
"We may see Sensex levels at 30,000 before budget," said Motilal Oswal, CMD, Motilal Oswal Financial Services.
Meanwhile, Finance Minister Arun Jaitley will meet captains of Indian industry to elicit their views on the budget, which is likely to be presented in the first week of July.