The BSE Sensex rose 1.3 percent on Tuesday, led by banks and automakers, as investors cheered positive domestic inflation trends and above-forecast GDP growth in China provided a welcome break from the eurozone's continuing woes.

Markets continued a rally from Monday afternoon after inflation hit a two-year low, with shares in State Bank of India (SBI.NS), the country's largest lender, and top carmaker Maruti Suzuki (MRTI.NS) up 2.2 percent and 4.3 percent respectively.

Softer inflation has raised expectations that we could see inflation continue to come down and the central bank could ease its rates, said Deven Choksey, chief executive officer and managing director of K R Choksey Shares & Securities.

Then China's GDP data suggests the global slowdown is not as bad as feared. There are lots of positives for the market.

India's headline inflation slowed in December to 7.47 percent as food price pressure eased dramatically, government data showed on Monday, but the central bank is expected to leave interest rates on hold next week.

Carmakers, which have been hit particularly hard by anti-inflationary tightening from the Reserve Bank of India, rose with the sector index up 2.1 percent at 10:25 a.m. (0455 GMT).

Tata Motors (TAMO.NS) raced as much as 3.6 percent after the company said global sales rose 27 percent in December, while shares in Mahindra & Mahindra (MAHM.NS) were up as much as 2.1 percent.

The main 30-share BSE index was up 1.33 percent at 16,404.74 points, with all but one of its components advancing.

Shares in India mirrored gains across Asia, as bourses advanced on slightly better-than-expected Chinese economic growth data that soothed investor worries the euro zone debt crisis was slowing global activity.

China, a key trading partner with India, said gross domestic product grew at its weakest in 2-1/2 years in the fourth quarter, slowing to an annual rate of 8.9, but beating expectations for an 8.7 percent rise.

Tata Consultancy Services Ltd (TCS.NS) was flat after falling negative in early trade ahead of the company's December quarter results.

The top Indian software services provider is expected to post a 23 percent rise in net profit on a weaker rupee, but will be watched for any cut in outlook guidance after industry bellwether Infosys (INFY.NS) cut its revenue outlook last week.

Smaller rival HCL Technologies Ltd (HCLT.NS) rose more than 4 percent after the software services company said its net profit for the quarter to end-December rose 43 percent.

Energy conglomerate Reliance Industries (RELI.NS), so often the bellwether of the market, was up 2.2 percent as investors returned to the stock to erase its fall on Monday.

The 50-share NSE index was up 1.39 percent at 4,941.85. In the broader market, gainers outpaced losers by a ratio of around 5 to 1 on total volume of about 182 million shares.

STOCKS ON THE MOVE

* ING Vysya Bank (VYSA.NS) rose as much as 3.8 percent after the private sector lender posted a 44 percent rise in quarterly net profit.

* Reliance Industrial Infrastructure (REII.NS) rallied as much as 4.5 percent after the company posted a 22.5 percent rise in December quarter net profit.