Sustained capital outflows amid weak Asian closing and lower European opening on the back of overnight fall on Wall Street on concerns over global economic growth scenario weighed negatively on sentiment. Besides, Indian rupee depreciated to 61.9 levels against US dollar on risk-aversion.
Selling was so strong across Indian stocks that all 12 sectoral indices closed with losses of up to 4.25 per cent with consumer durables, power, metal, auto, capital goods, oil&gas and IT sectors taking the lead in the downslide.
"Growth fears, falling inflation and disappointing US economic data has sent shares falling across Europe. Indian markets are afraid about the withdrawal of stimulus by US Fed," said Rakesh Goyal, Senior VP, Bonanza Portfolio.
The 30-share BSE Sensex resumed lower but tried to recover as it logged a high of 26,462.08. However, it soon fell in last one-and-half-hour of trade and ended at 25,999.34, a fall of 349.99 points or 1.33 per cent. This is its weakest closing since 25,918.95 on August 13, 2014.
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The 50-issue CNX Nifty of the NSE also dipped by 115.80 points, or 1.47 per cent to end at 2-month low of 7,748.20.
"It was a scary day for Indian markets which decisively broke the important zone of 7800 on Nifty...Now actual outcome of state polls will decide the fate of Indian markets going ahead," said Rajshekar Gowda, Senior Analyst, HBJ Capital.
Fall in the global crude oil prices with European benchmark Brent North Sea crude shed USD 1.22 to close at USD 83.78 a barrel in London, would have a sentimental impact, brokers said.