An earlier-than-anticipated rate hike by Fed after the two-day meeting that starts later today could lead to outflows, hurting emerging markets as the incentive for investors to chase higher yields becomes smaller.
Major bourses in Asia ended down and Europe was weak in morning trades. Rupee also continued to remain above 61-mark against dollar as domestic indices ended at three-week lows.
Besides, BJP heading for a sharp setback in bypolls appears to have had a bearing on sentiment, say brokers.
The 30-share BSE Sensex resumed better but fell back and continued its fall on sustained heavy selling. It settled at three-week low of 26,492.51, a steep fall of 324.05 points or 1.21 per cent. Previously, it had plunged by 414.13 points, or 1.60 per cent, on August 1, 2014.
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Tata Power, Tata Steel, Hindalco, NTPC, Tata Motors, ONGC, RIL, GAIL led the 23 laggards in Sensex.
The 50-issue Nifty stumbled by 109.10 points, or 1.36 per cent, to end below 8K-mark at a 3-week low of 7,932.90. This is its worst show since August 1 when it fell 118.70 points.
"Market players will be looking for clues on the timing of the first US rate hike in more than eight years. Consensus is that the Fed will hike interest rates next year and it may declare the timelines today," said HDFC Securities in a note.
In Asia, barring KOSPI, all major markets ended in the red on Fed rate hike fears and weak China data. Europe saw major benchmarks trading 0.4-0.6 per cent lower.