The spontaneous selling was indiscriminate as all sectoral indices bore the brunt of the intense sell-off.
Sentiment took a hit after country's exports shrank for the 14th straight month, down 13.6 per cent in January to USD 21 billion, due to fall in shipments of petroleum and engineering goods, although trade deficit showed improvement.
Banking stocks, particularly PSB counters, witnessed massive unwinding after country's biggest lender State Bank of India said bad loans are expected to surge in the March quarter too, impacting profits.
The Nifty had surged 2.6 percent on Monday, its biggest single-day percentage gain in more than a year.
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Meanwhile, major Asian markets closed in positive territory for the second day, extending Monday's rally on the back of bullish comments from European Central Bank President Mario Draghi that more stimulus is coming to boost sluggish euro zone growth and inflation.
On the sectoral front, PSU Bank plunged 6.17 per cent, followed by media (3.95 per cent), realty (3.34 per cent), pharma (2.28 per cent), FMCG (2.09 per cent), auto (1.93 per cent), Nifty bank (1.93 per cent), metal (1.92 per cent), infra (1.81 per cent), energy (1.38 per cent) and IT (0.72 per cent).
Mid-cap and small-cap shares too crumbled over 2.47 per cent and 2.19 per cent, respectively.
Shares of oil marketing companies were in the limelight after crude prices rallied on hopes of a production cut, triggering sharp selling in counters.
However, Adani ports, NTPC, IndusInd Bank, Power Grid, Hero MotoCorp, Wipro and Cairn India largely withstood the fall.
Turnover in cash segment dropped to Rs 14,976.72 crore from Rs 18,107.19 crore yesterday.
A total of 8,359.64 lakh shares changed hands in 73,90,281 trades. The market capitalisation of NSE stood at Rs 85,38,593 crore.