In addition, a firming trend on other Asian bourses also buoyed the trading sentiment here.
The 30-share barometer, which had gained 23.24 points yesterday, added 98.66 points, or 0.61 per cent, to 16,087.06.
All sectoral indices, led by banking, capital goods and metal, were trading in the positive zone with gains of up to 1.04 per cent.
The wide-based National Stock Exchange index Nifty moved up by 32.40 points, or 0.66 per cent, to 4,880.55.
Meanwhile, the rupee strengthened by 27 paise to 55.38 against the dollar in early trade today.
Brokers said expectations of a rate cut by RBI, spark off by Deputy Governor Subir Gokarn's comments yesterday and recovery in the rupee against the US dollar today, mainly boosted the trading sentiment.
Besides, a firming trend on other Asian markets also had a positive impact here, they said.
In the Asian region, Hong Kong's Hang Seng Index rose by 0.83 per cent and Japan's Nikkei Index by 0.46 per cent in morning trade. The US Dow Jones Industrial Average ended 0.14 per cent lower yesterday.
