The BSE Sensex rose to its highest close in six weeks on rising foreign portfolio inflows as global risk-taking improves on moves by the International Monetary Fund to help countries deal with the eurozone debt crisis.

HDFC Bank (HDBK.NS) climbed 1 percent after the No. 3 lender reported a higher-than-expected 31.2 percent rise in quarterly profit as a drop in loan-loss provisions and higher fee income made up for weak loan demand.

Bigger rival ICICI Bank (ICBK.NS), which releases its financial result on January 31, rose 3.6 percent, leading the gains in the main index.

The 30-share BSE index .BSESN closed up 1.17 percent at 16,643.74, its highest close since December 7. Twenty-three of its components gained.

The confidence is back, said K.K. Mital, head of portfolio management services at Globe Capital, with foreign funds returning to the market.

Foreign institutional investors moved more than $1 billion into Indian shares since the new year began, helping the benchmark index .BSESN gain 7.7 percent since the end of December.

In 2011, the index fell nearly a quarter as foreign funds pulled out more than $500 million after a series of rate increases by the Reserve Bank of India (RBI) to fight inflation hurt growth.

Headline inflation slowed in December to a two-year low as food price pressure fell sharply. The food price index in the year to January 7 fell 0.42 percent, data on Thursday showed.

Foreign funds also bought about $3 billion of local debt this month, data from the market regulator showed.

Investors turned sharply bullish on most emerging Asian currencies in the last two weeks, especially the Indian rupee and the Indonesian rupiah, a Reuters poll showed on Thursday.

The RBI will not cut interest rates at its review next Tuesday, economists polled by Reuters showed, but nearly unanimously expected the central bank to do so by the end of June.

Gajendra Nagpal, chief executive at Unicon Financial Intermediaries, said the RBI could give a signal about the outlook for rates and set the direction for the market.

Engineering conglomerate Larsen & Toubro (LART.NS) firmed up 2.95 percent, while energy major Reliance Industries (RELI.NS) ended up 0.8 percent.

Bharti Airtel (BRTI.NS), the country's top mobile phone carrier, bucked the trend and fell 1.4 percent after a 10.67 billion rupee tax demand by the government.

The company, which operates telecoms services in 19 countries across Asia and Africa, said it would challenge in court the tax demand over payments to international telecoms operators.

DLF (DLF.NS) closed up 4.4 percent after the Economic Times reported the company is in talks to sell 18 billion rupees worth of non-core assets in the fiscal year that begins in April.

The 50-share NSE index .NSEI was up 1.26 percent at 5,018.40. In the broader market, 994 gainers were ahead of 461 losers on relatively heavy volume of 724.6 million shares.

World stocks rose to their highest in over two months on Thursday as risk appetite improved on hopes Greece will reach an agreement with its creditors and the International Monetary Fund will boost resources to tackle the euro zone debt crisis.

At 1045 GMT, MSCI's broadest index of Asia Pacific shares outside Japan .MIAPJ0000PUS was up 1.01 percent.

STOCKS THAT MOVED

* Kingfisher Airlines (KING.NS) closed up 1.4 percent after the debt-laden carrier said it was in talks with Hong Kong-based distressed debt company SC Lowy Financial for a possible investment, throwing a potential lifeline for the cash-strapped airline.

* Reliance Capital (RLCP.NS) gained 3.8 percent after Japan's Nippon Life Insurance NPNLI.UL said it agreed to buy a 26 percent stake in the company's fund management unit.

* Ambuja Cements (ABUJ.NS) rose 2.3 percent, ACC (ACC.NS) added 1.9 percent, UltraTech Cement (ULTC.NS) gained 1.45 percent and India Cements (ICMN.NS) jumped 6.15 percent on expectations for a price hike of 6-7 rupees per 50 kilogram bag soon, dealers said.

* Bajaj Auto (BAJA.NS) climbed 0.9 percent after the No. 2 Indian motorcycle maker posted a 19.2 percent rise in quarterly net profit.