Mumbai, Sep 19 (Agencies): The BSE Sensex surged over 750 points and the Indian rupee pulled back below 62 per dollar after the U.S. Federal Reserve stunned markets and decided not to taper its asset-buying programme.

The Fed said it would await evidence of stronger economic growth before adjusting the pace of its purchases, and Chairman Ben Bernanke said in a press conference that market expectations cannot dictate policy actions.

The BSE Sensex closed 684.48 points or 3.4 per cent higher at 20,646.64, while the broader Nifty advanced 216 points or 3.7 per cent to end at 6,115.55.

The Bank Nifty gained 7 per cent on hopes that the Reserve Bank in its policy review on Friday, may ease some of emergency cash tightening steps it had initiated in mid-July.

Among large-cap banks, ICICI Bank gained 6.7 per cent while HDFC Bank was up 4.8 per cent.

The rupee surged as much as 2.8 per cent to 61.64 per dollar, hitting its highest in a month. The Fed's decision not to dial back its easy money policy is expected to provide a reprieve to the RBI in its policy making.

The rupee stands to gain the most if foreign funds return to riskier assets in the wake of the Fed's surprise decision. The partially convertible rupee has borne the brunt of the recent sell-off in emerging market currencies since the Fed bank signalled in May that it may begin tapering stimulus this year.
   
The Fed's move also means that the RBI will have greater flexibility if it wants to roll back some of the cash tightening steps it initiated since mid-July to stabilise the plunging rupee.

The RBI's decision to bump up its emergency funding rate by 200 basis points to 10.25 per cent and cap banks' borrowing from it roiled bond markets and pushed up corporate borrowing costs, adding to strains on the already slowing economy.

State Bank of India, the country's largest lender, on Thursday raised its base rate, or the lowest rate at which it lends, by 10 basis points to 9.80 per cent.

"A delay in the tapering agenda paves the way for the RBI to relook at the liquidity tightening measures put in place in July and possibly ease the restrictions. With the rupee already halving the losses seen from May to August, there might not be sufficient justification to keep those measures to place," said Radhika Rao, economist at DBS in Singapore.

"The policy commentary could adopt a move dovish and growth-supportive stance," she said, referring to the RBI's policy announcement after its meeting on Friday.

The new RBI Governor Raghuram Rajan will detail monetary policy on Friday and is widely expected to keep the policy rate and the cash reserve ratio unchanged, according to a Reuters poll. The poll, which was conducted before the Fed decision, also expects the July cash tightening steps to be retained.

A resurgence of inflation to a six-month high in August has muddied waters for the central bank, which has been battling a falling rupee and trying to revive the economy with growth having slumped to a decade low.

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