The BSE 30-share index, which remained in the positive zone for the fourth straight session till late morning, fell back to trade below yesterday's close - down 62.56 points to 16,120.70 at 1330 hrs.
The 50-scrip National Stock Exchange index Nifty lost 18.35 points to 4,887.70, after touching the day's high of 4,956.35 in morning trade.
Realty, FMCG and capital goods sectors led the Sensex decline.
Selling pressure emerged on foreign funds selling their positions after the rupee fell to record low levels to 55.08 per dollar despite the Reserve Bank measures to support the falling domestic currency.
As the rupee plunged to all-time low of 55.04 against the American currency yesterday, RBI imposed restrictions of USD 100 million on "position limit" for forward contracts by banks.
"The position limit for the trading member...Bank in the exchanges for trading Currency Futures and Options shall be USD 100 million or 15 per cent of the outstanding open interest, whichever is lower," RBI said in a notification.
It also advised the banks dealing in foreign currency to bring down their trading limits by June-end.