The BSE benchmark index, which had gained 76 points in the previous session, advanced further by 94.75 points, or 0.54 per cent to 17,728.20, a level last seen on March 15.
"Inflation numbers came out lower than the street expectation. July inflation numbers came in at 6.87 per cent below street expectation of 7.24 per cent...This moderation in inflation raises expectation for some monetary easing," said Milan Bavishi, Head Research, Inventure Growth & Securities.
The upsurge was led by stocks of refiners, banks and metal sectors. The gainers in 30-share Sensex were led by Tata Motors, Tata Steel, Jindal Steel and ICICI Bank which gained in th 2-3 per cent range.ONGC, Gail and RIL also gained amid strong buying activity.
On the other hand, Sun Pharma which lost 2.1 per cent today was the worst performing stock in Sensex.
The 50-share National Stock Exchange index Nifty rose by 32.45 points, or 0.61 per cent to 5,380.35, after touching a day's high of 5,387.05.
Brokers said, after a weak start, the trading sentiment improved as inflation numbers came in lower-than-expected.
They added that domestic market received further support on firming global stock markets on reports that policy makers are preparing to stimulate the Eurozone economy through a series of steps.