Shares fell as the rupee declined against the dollar for the first time in five days.
ICICI Bank, HDFC Bank along with heavyweights Reliance Industries and Infosys dragged the index lower.
Hindalco Industries, Bharti Airtel and Hero MotoCorp were among the 26 losers on the Sensex, even as Coal India emerged as the biggest gainer. Bank, consumer durables and auto shares led 12 of the 13 BSE sectoral indices down.
It was the biggest drop for the index since November 5. In the previous three sessions, the Sensex had notched up gains of 696 points.
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The broader CNX Nifty index on the National Stock Exchange was down 80.45 points, or 1.3 per cent, at 6,122.90. The SX40 on the MCX Stock Exchange closed 155.5 points lower at 12,245.9.
"Once again, heavy selling pressure in last hour of trade brought Nifty to negative territory," said Nidhi Saraswat, Senior Research Analyst at Bonanza Portfolio Ltd. "Here too profit booking was prominent. Weaker global markets...Also led to selling pressure."
Markets also awaited the release of the minutes of the Federal Reserve's Oct. 29-30 policy meeting for indications of when tapering of the stimulus programme may start.
Fed chief Ben Bernanke yesterday reiterated the US central bank's commitment to an easy policy.
The rupee fell by about 25 paise to 62.62/63 against the dollar.