By 10:50, the Sensex was higher by 90 points at 25,504 mark and the Nifty gained by 22 points at 7,634 levels.

Adds Ranak Merchant, Technical Analyst - Strategies at Sushil Financial Services, “Lifetime high of 7700 for Nifty appears to be within striking distance since Nifty spot hovers around 7632 as we chat. With supports of 7441 being held onto last week and the trigger point of 7542 crossed substantially with the ongoing 2 day momentum, re-test of life highs cannot be ruled out. A pre-budget rally as it appears to be must be traded with caution and a trailing stop loss needs to be in place. Heavy positions to be avoided.”

On the global front, Asian shares were off to a cautious start near a three-year high on Tuesday while the U.S. dollar was listless as investors took new bets that U.S. monetary policy will stay loose for some time.

MSCI's broadest index of Asia-Pacific shares outside Japan ticked down 0.1%, though it was still within 0.3% from a three-year high hit three weeks ago. Japan's Nikkei gained 1.0%.

A string of fairly upbeat but relatively minor U.S. economic data published on Monday did little to weaken expectations, rekindled after surprisingly weak first quarter growth data, that the U.S. Federal Reserve will keep an easy monetary policy for some time.

China's factory growth rose to a six-month high in June on improving domestic and foreign demand, adding to signs that the economy is regaining strength after an unsteady start to 2014.

The official Purchasing Managers' Index (PMI) stood at 51 in June, the National Bureau of Statistics said on Tuesday, quickening from May's reading of 50.8 and in line with market expectations.

Back home, foreign portfolio investors (FPIs) bought shares worth a net Rs 1,288.16 crore on Monday, as per provisional data from the stock exchanges.

The rupee today recovered by 6 paise to trade at 60.11 against the US dollar in early trade on Interbank Foreign Exchange market amidst sustained foreign capital inflows.

On the sectoral front, BSE Metal index has zoomed by nearly 3% followed by counters like Auto, Realty, Capital Goods and Power, all gaining between 1-2%. However, BSE IT index has declined by nearly 1%.

Metal stocks have gained as data showed China's manufacturing expanded in June at the fastest pace this year. China is the world's largest consumer of copper and aluminum.

Hindalco Industries has rallied 7% to Rs 176, also its highest level since July 2011 on NSE, after CLSA upgraded the stock to buy from sell rating with a target price of Rs 215.

Other notable gainers are M&M, Maruti Suzuki, Sesa Sterlite, Tata Steel, Tata Motors and BHEL.

On the losing side, TCS, Wipro, Infosys, HDFC and GAIL have slipped between 0.5-1%.

Among other shares, Sasken Communication Technologies is locked in upper circuit of 20% at Rs 266 on NSE after the company said it has received arbitration award in its favor in the matter of Spreadtrum Communications Inc.

L&T Finance Holdings is trading higher by 2.5% at Rs 76.35 after the company said its board has approved to raise up to Rs 263 crore by issuing Cumulative Compulsorily Redeemable Preference Shares (CCRPS) on private placement basis.

The broader markets continue their outperformance- BSE Midcap and Smallcap indices have gained by nearly 1% each.