In volatile trade, the Sensex washed out major part of previous day's gains on across-the-board selling and closed down about 275 points on Wednesday as rising crude prices due to worsening Iraq unrest threaten India's economy, already reeling under price rise and slowing growth.
The market got a jolt when the news of militant attack on Iraq's main oil refinery this morning filtered in. As a result, Sensex plunged by over 400 points mid Wednesday afternoon.
In energy trading, benchmark crude oil for July delivery added 41 cents to USD 106.77 on New York Mercantile Exchange.
Slowdown in foreign fund inflow and sharp rise in the rupee value to near 60.40 in mid-session deals also weighed on the domestic stock market sentiment.
Eleven out of the twelve BSE sectoral indices closed in the red logging losses between 0.72% and 2.10%. Realty, oil&gas, power, consumer durable, banking, auto and IT took the lead in the downslide while only healthcare index finished in the green.
The BSE 30-share indicator resumed better and moved in a narrow range till early mid-session. After falling sharply to a low of 25,114.30, it recovered some ground to end at 25,246.25, a net fall of 274.94 points or 1.08%.
Yesterday, it had shot up by 330.71 points or 1.31%.
The 50-issue CNX Nifty of the NSE also slumped by 73.50 points, or 0.96%, to end at 7,558.20.
Jignesh Chaudhary, Head of Research, Veracity Broking Services said: "There was concern over the impact of higher oil prices on inflation as India imports 80% of its oil requirements and higher oil prices will automatically elevate the inflation."
After markets closed on Tuesday, government unveiled a host of steps to tame inflation that has soared to a five-month high of 6.01% in May.
World stocks were muted on Wednesday as investors waited for an update on the US economy later at night from the Federal Reserve following its two-day policy meeting where it is widely expected to cut monthly stimulus further by USD 10 billion.