Trade deficit narrowed to $8.98 billion in September, from $11.64 billion in August, as merchandise exports grew about 26 percent from a year ago.
The data adds to the positive sentiment in markets, with the Nifty also marking a fresh peak on Monday on indications the economy is recovering after growth slowed to a more than three-year low in the April-June quarter.
The rupee gained for a sixth consecutive session, partly as inflows into debt markets remained strong, rising to as much as 64.69 per dollar, its strongest since Sept. 21.
"On a macro front, economic data released in the last week or so came in fairly positive," said Shibani Kurian, senior vice president and head of equity research at Kotak Mutual Fund.
"Inflation data was encouraging, while the trade deficit data is favourable than what we saw last month."
Consumer inflation in September held steady from the prior month, while industrial output grew at a nine-month high of 4.3 percent in August, government data showed last week.
The Sensex climbed as much as 0.79 percent to a life-high of 32,687.32, a milestone it last touched on Aug. 2.
The broader Nifty rose as much as 0.74 percent to 10,242.95. It had touched an all-time high on Friday.
Oil-to-retail giant Reliance Industries Ltd climbed about 1.8 percent to touch a fresh record high.
Higher margins from Reliance's core refining and petrochemical businesses helped push September-quarter profit higher, while investors cheered the management's optimism on the prospects of its Jio telecoms unit.
Bharat Financial Inclusion Ltd gained nearly 4.3 percent to hit its highest in nearly seven years after IndusInd Bank Ltd agreed to an all-share deal to buy the company. IndusInd Bank fell 3 percent.
Shares of animal feed producer Godrej Agrovet surged as much as 37 percent to Rs 630 on debut, from its IPO price of Rs 460.
© Thomson Reuters 2017
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