The S&P BSE Sensex extended gains for the third consecutive session on Thursday, supported by positive global cues. and higher-than-expected rate cut announced by the Reserve Bank of India (RBI) earlier this week.

The Sensex was up 66 points to close at 26,220 points while the 50-share Nifty almost ended flat at 7,950, up 2 points.

"Building on previous two sessions' upmove, market gathered some more steam but gains remained limited on account of not so encouraging macro-economic data, which raised doubts over the health of Indian manufacturing activity," said Amar Ambani, Head of Research, IIFL.

After opening strongly tracking global cues, the markets failed to sustain the gains as a business survey showed that India's manufacturing activity fell to a seven-month low in September.

"Despite having been supported by sustained increases in new work, growth of Indian manufacturing production in September was weighed down by a difficult economic climate," said Pollyanna De Lima, Economist at Markit.

However, positive sentiment triggered by 50bps cut in India' in RBI's repo rate on Tuesday prevailed among investors for the third day, underpinning the strength of the markets.

Following the RBI's booster, many banks have started cutting their lending rates. State Bank of India (SBI), Andhra Bank, Axis Bank and Bank of India announced a cut in base rates, among others.

"Investors should tread carefully at this juncture, as the market could get pegged back again on any fresh bad news. The market will take note of the usual Services and Composite PMI. With major events out of the way and earnings season to kick off in mid-October, the coming week will see rejig in portfolios. Trend in investment activity of FIIs and movement in global markets will determine the near term trend on the domestic bourses," Ambani said.

Meanwhile, Asian markets ended higher on the day tracking gains in the US markets and positive economic data in Asia's top economies – China and Japan. In China, an official manufacturing activity data rose more-than-expected, easing concerns over a slowdown in the world's second largest economy.

While China's Shanghai Composite index gained 0.50% to close at 3,053 points, Japan's Nikkei ended 1.9% higher at 17,722 points.

UltraTech Cement, Lupin, Zee Entertainment, Sun Pharma and Adani Port were the top gainers, while HCL Technologies, BHEL, GAIL, Maruti Suzuki, Vedanta and HDFC ended as top losers.

HCL shares plunged by nearly 13% to close at Rs 857.90 on the BSE, after the company warned that its revenues would be hit by currency fluctuations in the July-September quarter. HCL also said that its earnings would be negatively impacted by some client-related issue.

Gold prices continued their losses for a fifth consecutive session and ended Rs 250 down to close at a six-week low of Rs 26,150 per 10 grams. The yellow metal prices remained under pressure due to weak trend in overseas markets and sluggish demand from jewellers. Silver prices also fell by Rs 150 to Rs 34,600 per kg on the back of weak demand.