Wholesale price index-based inflation plunged to (-)4.05 per cent in July, from (-)2.40 per cent in June.
The latest set of numbers followed data earlier this week which showed retail inflation eased in July, which raised hopes of a possible rate cut by RBI.
Equity brokers said better-than-expected positive macro data fuelling hopes of a policy rate reduction triggered buying by participants, helping key indices regain their crucial levels.
The 30-share index, which rose over 162 points in early trade, continued its advance, soaring 500.52 points, or 1.82 per cent, to 28,050.05 at 1326 hours.
Also Read
The gauge had gained 37.27 points in the previous session.
All sectoral indices, led by realty, banking, auto and healthcare, were trading in the positive zone with gains up to 5.57 per cent.
The NSE Nifty retook the crucial 8,500-mark by surging 166.15 points, or 1.99 per cent, to 8522 at 1326 hours.
Vedanta led the pack of gainers, followed by RIL, HDFC, Bajaj Auto and ICICI Bank.
Meanwhile, foreign portfolio investors (FPIs) net sold shares worth Rs 625.90 crore yesterday, provisional exchange data showed.