Domestic markets were inspired by the 2.5% burst in Nasdaq Monday and a similar 2.21% gain in the Dow.

As a result, the benchmark 30-share BSE Sensex was up 46.32 points or 1.3% to 3,382.96 in early trades. The S&P CNX Nifty was up 16.35 points or 1.5 % to 1,068.15.

IT pivotals were the firmest of the lot propelled by the Nasdaq's strength. Tech bellwether Infosys Technologies (up 5% to Rs 3,066) led the gains. There were strong gains for the likes of HCL Technologies (up 4% to Rs 152.50), Wipro (up 5.5% to Rs 899.50) and Satyam Computer (up 2.5% to Rs 188.50).

A number of second line IT stocks moved up as well including Geometric Software (up 4.7% to Rs 365), Aztec Software (up 4.6% to Rs 19), VisualSoft Technologies (up 4.3% to Rs 138), Hexaware Technologies (up 3.9% to Rs 110), Infotech Enteprises (up 3.6% to Rs 114.60), PSI Data Systems (up 3.8% to Rs 62.70), Kale Consultants (up 3.5% to Rs 36.50) and KPIT Cummins Infosystems (up 3% to Rs 146.50).

Broad Sensex stocks were also reverberating with gains - Grasim Industries (up 4.7% to Rs 407), Dr Reddy's Laboratories (up 3.3% to Rs 1,032), L&T (up 2.6% to Rs 242.25), HDFC (up 2.3% to Rs 404), ACC (up 1.6% to Rs 148), Reliance Industries (up 1.6% to Rs 312), Hero Honda (up 1.5% to Rs 244), Telco (up 1.1% to Rs 186), Tisco (up 1.1% to Rs 149.55), Zee Telefilms (up 1% to Rs 91) and MTNL (up 1% to Rs 104.60).

The strength in the U.S. markets Monday seemed to be providing the fuel for the rally on the domestic bourses. U.S. stocks ended sharply higher on Monday, pushing the blue-chip Dow to its highest level in almost a year, after a report on New York state's manufacturing sector proved surprisingly strong and sparked hopes that the U.S. economy will recover later this year. Expectations of an interest-rate cut by the Federal Reserve's policy board, which meets on 24-25 June , also fueled investor optimism.

The Dow Jones industrial average finished up 201.84 points, or 2.21% , at 9,318.96, its highest close since 5 July 2002. All 30 Dow components ended higher. The broader S&P 500 index rose 22.24 points, or 2.25% , to 1,010.85, its highest finish since 19 June 2002. The technology-laced Nasdaq Composite Index climbed 40.09 points, or 2.46% , to 1,666.58, marking its highest close since 23 May 2002.

The increased inflow of funds into the equities market along with a combination of factors like expectations of good monsoon this year, the resolution of the Iraq issue and a surge on the US tech-heavy Nasdaq index has led to a revival in stock markets in India. The monsoon is a key factor for the fortunes of Old Economy stocksin key sectors like pharmaceuticals, cement and FMCG . It is reckoned that a good monsoon will set off an increase in purchasing power among the rural populace. The BSE Sensex has gained 458.93 points or 15.6% in less than two months to the current 3,382.96 from a low of 2,924.03 on 25 April 2003.

The cumulative FII inflow into India (which also includes inflow into the debt market) has reached Rs 7829.60 crore. This is more than double the inflow of Rs 3,078.60 crore recorded in the corresponding period last year.

The surge in FII inflows this year, witnessed since April 2003, is attributed to a shift in FII focus from South East Asian markets like Hong Kong and Singapore (which have been affected by SARS) to promising markets like India and Vietnam. Besides, China is also expected to see a fall in GDP growth this year. This, too, has resulted in the shift in focus, analysts say.

Meanwhile, the cash kitty of domestic mutual funds is burgeoning . Persistent selling by UTI, that has characterised trading in recent years, has also lessened recently, according to dealers.