By Abhishek Vishnoi
MUMBAI (Reuters) - The BSE Sensex rose 1.25 percent on Friday as hopes that domestic institutional investors would turn buyers sparked a rally in blue-chips such as ICICI Bank, allowing indexes to post their best weekly gain in nearly two months.
Domestic institutional investors (DIIs) bought shares worth 3.30 billion rupees on Thursday, snapping a selling streak of at least 12 days, according to the most recent available exchange and regulatory data.
A return of domestic investors - who have sold heavily this year - would potentially provide a new boost to markets given signs of waning buying appetite from foreign investors.
Strong buying by foreign investors spurred the Sensex to a record high on November 3, but shares have steadily lost ground since then, with the index falling 1.8 percent for the month.
Traders said hopes that state elections results on December 8 would yield a clear winner are also boosting shares.
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"It looks like street expects a year-end rally. However, there would be a caution ahead of GDP number and state election results in the first week of this month," said Dipak Acharya, fund manager of equities at Baroda Pioneer AMC.
The Sensex rose 1.25 percent, or 257.02 points, to end at 20,791.93, rising 2.8 percent for the week.
The Nifty rose 1.38 percent, or 84.25 points, to end at 6,176.10, also gaining 3 percent for the week but ending 1.95 percent lower for the month.
Both indexes posted their biggest weekly loss since the week ended on October 11.
Among blue-chip shares, Sesa Sterlite Ltd rose 4.6 percent while Cipla Ltd 3 percent.
In bank stocks, ICICI Bank ltd ended 2.9 percent higher while State Bank of India Ltd rose 3.2 percent.
Jubilant Life Sciences Ltd surged 9.4 percent after the company said it got approval from U.S. drug regulators for a generic version of AstraZeneca Plc's Seroquel drug, used for the treatment of schizophrenia and bipolar disorder.
Jaiprakash Associates Ltd rose 9 percent while Jaypee Infratech Ltd rose 6.7 percent on speculation that the group's debt and working capital position is getting better, dealers said.
Contrary to falls in the main indices, small and mid-cap stocks rose for a third month in November as analysts say the beaten down sectors played catch up to larger rivals.
Mahindra and Mahindra Ltd fell 1.4 percent ahead of its monthly sales data next week.
(Editing by Sunil Nair)