The market rally was driven by strong buying in the banking space and recovery in metals and oil & gas counters. Traders said sustained foreign capital inflows also boosted investor sentiment.
Earning season guidance and expectations from upcoming budget also aided the rally, brokers said.
HDFC at 5.84 per cent was the biggest Sensex gainer, followed by SSLT at 5.36 per cent, Tata Steel 4.50 per cent, Axis Bank 4.33 per cent and Tata Motors 3.78 per cent.
The 50-share NSE Nifty also rose by 144.90 points or 1.69 per cent to 8,695.60, its record closing high, after crossing 8,700-level for the first time in its history.
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"Markets continued the good run and closed at a fresh high on the back of positive sentiments emanating from the RBI rate cut, expectations of further reforms from the Government, expectations of ECB stimulus and a slightly netter-than- expected GDP number from China," said Dipen Shah, Head, Private Client Group Research, Kotak Securities.
"Equity markets (in India) scaled a new high today. There is no one reason for this, the market is in a bull grip. The IMF's optimistic forecast on India's expected growth rate till 2016 was another shot in the arm, as was the prediction that India's growth rate may exceed China's after a long time," said Jayant Manglik, President, Retail Distribution, Religare Securities.
Foreign portfolio investors bought shares worth a net Rs 433.72 crore yesterday, as per provisional data from stock exchanges.