Besides, the Reserve Bank pegged 2012-13 GDP growth at moderate 7.3 per cent, lower than the government's projection of 7.6 per cent. For FY'12, GDP is estimated at 6.9 per cent.
In its Annual Monetary Policy for 2012-13, RBI cut repo rate - at which it lends to banks - by 0.50 per cent at 8 per cent to spur economic growth.
Between March 2010 and October 2011, RBI hiked policy rates 13 times to tame inflation that was hovering near double-digit but has now shown signs of moderation. High cost of borrowing hit investments and hurt growth.
Initially, Sensex moved in a narrow range and touched a low of 17,103.36 on subdued Asian markets. After the rate cut, it bounced back but fell again to yesterday's level. Finally, it settled at 17,357.94 - up 206.99 points or 1.21 per cent.
The NSE 50-scrip index Nifty spurted 63.50 points or 1.22 per cent to 5,289.70.
All the 13 sectoral indices were up with realty, metal, banking, capital goods and power stocks making gains. Overall, 27 of the BSE 30-scrip Sensex made gains. Only RIL, M&M and Maruti Suzuki finished with small losses.
“Stock market rallied immediately after the RBI announced a cut of repo (lending) rate, but the rally lost steam as profit-booking set in. Markets were a tad disappointed by the RBI statement that there was little headroom for further cuts,” said Sharmila Joshi, Head Equity, Fairwealth Securities.
“After the initial euphoria, the market pared gains as the cautious RBI wording sunk in. Apart from the slowing growth rate, RBI also maintained that since upside risks to inflation still persist,” said Shanu Goel, Research Analyst at Bonanza Portfolio.
Globally, key indices in China, Hong Kong, Japan, Singapore, South Korea and Taiwan closed down by up to 1.86 per cent. In Europe, markets in France (CAC), Germany (DAX) and Britain (FTSE) were up in the afternoon trade.
Meanwhile, FIIs sold shares worth Rs 509.43 crore yesterday, as per provisional data from the stock exchanges.
Major Sensex gainers were ONGC (3.62 pc), CIL (3.18 pc), Hindalco (3.06 pc), DLF (2.76 pc), Hero MotoCorp (2.71 pc), Gail India (2.56 pc), L&T (2.45 pc), ITC (2.09 pc), Sterlite (2.02 pc), TCS (1.92 pc), Bharti Airtel (1.89 pc), Tata Steel (1.59 pc), SBI (1.53 pc), Jindal Steel (1.49 pc), NTPC (1.48 pc), ICICI Bank (1.40 pc), Bajaj Auto (1.32 pc), Sun Pharma (1.32 pc) and Tata Power (0.97 pc).
Among sectoral indices, the BSE-Realty rose 2.41 pc, followed by Metal - 2.01 pc, PSU - 1.83 pc, Capital Goods - 1.67 pc, Power 1.64 pc, FMCG - 1.44 pc and Teck - 0.94 pc.
The total market breadth at the BSE remained positive, as 1,661 stocks gaining ground, while 1,164 ended with losses. The total turnover shot up to Rs 2,713.78 crore, from Rs 1,799.55 crore yesterday.