The BSE benchmark Sensex closed over 120 points higher with rate sensitive banking and realty stocks attracting good buying on optimism of RBI easing monetary policy next month even as the central bank kept the interest rate unchanged in the policy review today.

The Bombay Stock Exchange 30-share barometer resumed better amid growing clamour for a rate cut by the Reserve Bank of India (RBI) in today's mid-quarter monetary policy review. However, it fell to a low of 19,149.03, down by over 95 points, after the central bank maintained status quo.

However, the bluechip index rebounded nearly 250 points after the RBI hinted easing of rates in January saying with decline in inflation, the focus of monetary policy would "shift" to removing impediments to "growth". It closed at 19,364.75, a rise of 120.33 points or 0.63 per cent.

Rise in Bharti Airtel, HDFC, L&T, Tata Steel, SBI, Tata Motors, BHEL, Sun Pharma, ICICI Bank and Hindalco contributed significantly to Sensex gains.    

"RBI kept the rates and CRR unchanged and this caused markets to take an initial hit. However, hopes of monetary easing are being built for first quarter of 2013," said Milan Bavishi, Head Research, Inventure Growth & Securities.

Buying was seen across-the-board as 12 out of 13 sectoral indices closed with gains while only BSE-Oil&Gas finished with minor losses as RIL and ONGC closed lower.

Across the market, 1,682 out of 3,073 stocks registered gains helping the investor wealth rise by about Rs 50,000 crore to Rs 68.27 lakh crore.

The broad-based National Stock Exchange index Nifty rose by 38.90 points, or 0.66 per cent, to 5,896.80.

With government withdrawing a clause allowing futures trading for banks from a Bill which seeks to amend banking laws, traders said the move helped cement gains in the sector.

They added a firming global trend on optimism over progress made by US policy makers last night to avoid 'fiscal cliff', aided Indian stocks.

Asian stocks ended narrowly mixed with an upward bias on signs of reports of progress on US budget talks. Key benchmark indices in China, Japan, South Korea and Taiwan moved up by 0.10-0.51 per cent while indices in Hong Kong and Singapore eased marginally.

European markets were trading higher in their afternoon trade as indices in Germany, France and UK inched up by 0.24-0.64 per cent.

Turning to the local market, 23 scrips out of the Sensex family ended with gains while only six finished with losses and Tata Power was unchanged.

Major gainers from the Sensex pack included Bharti Airtel (4.23 pc), BHEL (4.14 pc), Tata Steel (3.76 pc), Hindalco (2.66 pc), Sun Pharma (2.33 pc), Jindal Steel (2.07 pc), Wipro (1.47 pc), L&T (1.36 pc) and Tata Motors (1.31 pct).

SBI (1.19 pc) and HDFC (1.15 pc) also rose smartly.

However, Maruti Suzuki fell by 1.64 per cent and ONGC by 0.87 per cent among losers.

"We expect a 50 bps cut in policy rate in January and at least another 50 bps in remaining CY13. If the growth, inflation and government policies momentum retains current trajectory, a more accommodative RBI stance is a certainty," said Motilal Oswal, CMD, Motilal Oswal Financial Services.

Among sectoral indices, the BSE-Realty firmed up by 2.38 per cent, followed by the BSE-Metal (1.78 pc), the BSE-CG (1.50 pc), the BSE-Teck (1.14 pc) and the BSE-Power (1.08 pc).

The total turnover shot up to Rs 3,065.71 crore from Rs 2,466.07 crore yesterday.

Foreign institutional investors (FIIs) bought shares worth a net Rs 886.68 crore yesterday as per provisional data from the stock exchanges.