A string of negative news hit the Sensex on Wednesday with traders dumping stocks and pushing a benchmark index down to more than a six-month low.
Broader markets continued to get pounded as mid-to-small valued scrips lost much more than front-liners.
The Central Bureau of Investigation widening the investigations related to the 2G scam combined with fears of further interest rate tightening had more than a dampening effect on traders.
The 30-scrip sensitive index (Sensex) of the Bombay Stock Exchange (BSE), which opened at 17,723.99 points, closed at 17,592.77 points, down 182.93 points or 1.03% from its previous close at 17,775.7 points.
The Sensex had closed around this level at July 7 last year.
The 50-scrip S&P CNX Nifty of the National Stock Exchange ended 1.11% lower at 5,253.55 points.
Broader markets saw heavier selling, with the BSE midcap index closing 3.64% down and the BSE small cap index ending 4.3% lower.
The market breadth was negative, with 516 stocks advancing compared to 2,365 scrips on the decline. A total of 98 stocks remained unchanged.
Among gainers on the 30-scrip Sensex were: M&M, up 4.06% at Rs.654.20; HDFC, up 3.16% at Rs.609.55; DLF, up 1.13% at Rs.242 and Infosys, up 0.98% at Rs.3,127.
Major losers included Reliance Infra, down 18.79% at Rs.534.70; Reliance Communications, down 14.32% at Rs.94.85; Jaiprakash Associates, down 10.68% at Rs.72.35 and Hindalco Industries, up 6.17% at Rs.219.70.
According to data available with market regulator SEBI, foreign institutional investors were net buyers, selling scrips worth $117.12 million Wednesday.
Other Asian markets were in the red as well with traders fearing that China's latest interest rate hike could derail economic growth.
The Japanese Nikkei shed 0.17% to close at 10,617.83 points, while Hong Kong's Hang Seng ended 1.36% down at 23,164.03 points.
A benchmark of Chinese markets, Shanghai Composite index, which reopened after a long holiday, shut shop 0.89% lower at 2,774.07 points.
European markets were flat as traders took a breather after a recent rally.
Around mid-day, the French CAC 40 was trading 0.1% down at 4,103.97 points, while the UK's FTSE was ruling 0.28% lower at 6,074.33 points.
The German DAX was ruling flat at 7,323.65 points.