The markets were unable to sustain the gains witnessed in the first half of trade.
After opening mildly in the green and gaining a little more than 100 points at one point, the Sensex lost nearly 300 points from the day's highs and 163 points from the previous day's close to end at 16617, and the Nifty edged below the 5000 mark to end at 4984, down 49 points.
The midcap and smallcap indices ended half a per cent lower at 6758 and 8468 respectively.
European shares, which had opened flat, turned negative on worries about the persistance of euro zone's debt crisis and this seems to have dragged our markets lower. Germany, UK and France were down around a per cent each.
The US stocks had fallen overnight, taking S&P 500 to its lowest close in seven months. The Dow lost 115.48 points to 9,816.49, Standard & Poor's 500 index slid 14.41 points to 1,050.47 and the Nasdaq tumbled 45.27 points to 2,173.90.
The BSE metal index hit a seven-month low on the Bombay Stock Exchange after LMEX, a gauge of six metals, fell for the six straight session on the London Metal Exchange.
Hindalco plunged to a six-month low of Rs 132, down 5.8%, to emerge as the top loser on the Sensex. Tata Steel weakened by 2.1% at Rs 452 and Sail shed 2.1% at Rs 189.
Telecom stocks saw some profit-booking after the gains in recent times.
RCom weakened by 4.6% at Rs 167 and Bharti Airtel shed 3.7% at Rs 257.
Oil stocks also experienced selling pressure after the government deferred the decision on fuel price hike and deregulation.
India Oil Corporation, BPCL, HPCL and ONGC fell between 1% and 4% each.
And index heavyweight RIL slipped below the 1000 mark to end at Rs 996, lower by more than a percent.
On the other hand, Tata Power ended at Rs 1242, stronger by 1.4%, Cipla ended at Rs 324, higher by 0.8% and HDFC ended at Rs 2700, up 0.8%.
And aviation stocks ended in the green as the Empowered Group of Ministers (EGoM) failed to take a decision on the Kirit Parikh Committee Report recommending fuel price hike.
SpiceJet ended at Rs 59, stronger by 4.2% and Kingfisher Airlines ended at Rs 44, higher by 3.4%.
Jet Airways ended more than 1% higher at Rs 494.
The market breadth turned negative at close.
Out of 2926 stocks traded on the BSE, there were 1120 advancing stocks as against 1658 declines.
Tata Steel topped the value charts on the BSE with a total turnover of Rs 134.60 crore. This was followed by RCom (Rs 120.87 crore), SBI (Rs 96.08 crore), Tata Motors (Rs 82.78 crore) and RIL (Rs 76.02 crore).
RCom led the volume charts with trades of 11.14 million. It was followed by Tata Steel (2.55 million), Hindalco (2.24 million), DLF (1.92 million) and Jaiprakash Associates (1.58 million).
