Diwali fireworks have started on Dalal Street. Stocks raced to a 17-month high on Wednesday as the market caught up with sharp gains across Asia after a day's holiday. The BSE Sensex closed up 1.2 per cent, or 204.44 points, at 17,231.11. The index rose to 17,274.59 during trade, its highest since May 21, 2008, amidst heavy foreign fund buying. The 50-share NSE index closed 1.3 per cent higher at 5,118.20.

Foreign institutional investors who led the bull rally purchased stocks worth Rs 1,444 crore, taking the total investments in 2009 to Rs 21,313 crore. Investors were upbeat after the Prime Minister's Economic Panel said the RBI is not likely to hike interest rates in its monetary policy review on October 27. "I don't think the RBI will revise interest rates in the policy review... As far as the monetary policy is concerned, it has followed an accommodative policy, and unless inflation pressures are very strong, there may not be any change in the stance," PMEAC chairman C Rangarajan said.

Surging foreign portfolio investment on the back of a recovering economy have underpinned the market, with the inflow since the start of January edging towards $13 billion - about the same that had flowed out last year. The market has gained almost 79 per cent so far this year, and the benchmark has more than doubled from 8,047.17 points struck in early March.

Meanwhile, the rupee rose to a one-year high of 46.13 against the dollar -- which plummeted to a new low against its major rivals -- on anticipation of foreign funds pouring into strong domestic equity markets. The domestic currency hit a high of 46.02, the level not seen since September 24, 2008. However, it closed at came down to settle at 46.13, up 35 paise from its last close.