Mumbai, Jan 17 (IANS): A surprise cut in the lending rate by the Reserve Bank of India (RBI) led the barometer of Indian equities markets to gain more than two percent in the weekly trade ended Jan 16.

Positive sentiments due to healthy industrial output numbers, slower inflation and the surprise rate cut by the apex bank, led the Indian equities markets to gain 663.51 points or 2.41 percent during the week ended Jan 16.

The benchmark 30-scrip Sensitive Index (Sensex) of the S&P Bombay Stock Exchange (BSE) closed at 28,121.89 points, while it had ended trade at 27,458.38 points on Jan 2.

Thanks to the rate cut the Indian markets outperformed the other developing market indices.

The rate cut was triggered by recent inflation data that met apex bank's target of a below eight percent retail inflation by January 2015. RBI then reduced the repo rate or the rate at which it lends to commercial banks by 25 basis points.

The RBI's move is expected to reduce monthly instalments on auto, home and consumer durable loans.

The unscheduled rate cut served early Thursday morning led Indian Inc. to cheer the move and stock markets to rally 729 points.

The much awaited reduction in lending rates fulfilled RBI governor Raghuram Rajan's predictions of an 'out-of-turn' rate cut, as and when, inflation eases.

The move which came as a surprise broke away from the standard RBI practice of announcing the lending rates every two months in a financial year.

The announcement, though anticipated, was expected to be made at the next monetary policy review meeting scheduled for Feb 3.

"Market has returned to weigh in global factors where currency and commodities have shown higher movement. Market expects that ECB (European Central Bank) will take the decision to increase QE (Quantitative Easing) in the next meeting, post which such global volatility can be capped," said Vinod Nair, head-fundamental research, Geojit BNP Paribas Financial Services.

"As global factor gets addressed, India can look ahead to further rate cuts and budget expectation."

According to Shrikant Chouhan, head- technical research, Kotak Securities as far as the Indian markets are concerned, the economic indicators have begun to show some strength (IIP and inflation data).

"All indications are that the next fiscal economic growth should range between 5.5-6.5 percent. The market sentiment remains positive."

The strong positive traction in the Indian markets attracted foreign investors in the week under review. The foreign institutional investors (FIIs) returned as net buyers in the capital market segment.

For the week ended Jan 16, the FPIs bought stocks in equity markets worth Rs.2,206.52 crore or $356.78 million, according to data with the National Securities Depository Limited (NSDL).

During the previous week (Jan 9), the FPIs were net sellers in the equity markets. They sold stocks worth Rs.3,008.43 crore or $474.86 million.

The foreign institutional investors (FIIs) along with sub-accounts and qualified foreign investors have been clubbed together by market regulator Securities and Exchange Board of India (SEBI) to create a new investor category called FPIs.

Major Sensex gainers on Jan 16 were: Sun Pharma, up 2.88 percent at Rs.850.75; Coal India, up 2.55 percent at Rs.377.90; Hindustan Unilever, up 2.28 percent at Rs.942.45, Mahindra and Mahindra (M&M), up 2.10 percent at Rs.1,303.85 and BHEL, up 2.05 percent at Rs.274.05.

The losers were: Hindalco Inds, down 2.40 percent at Rs.138.45, Bharti Airtel, down 1.89 percent at Rs.342.55, Hero MotoCorp, down 1.81 percent at Rs.2,896.85, State Bank of India (SBI), down 1.39 percent at Rs.315.60 and Tata Motors, down 1.29 percent at Rs.525.60.