The BSE benchmark index, which had gained 171 points or nearly 1 per cent in last two trading sessions, opened higher but was choppy for the most part of the session. However, in the last half an hour, selling pressure was pronounced and the Sensex finally closed 70.99 points down at 17,657.21.
The 30-share index was dragged by ITC that dropped 3.6 per cent on reports that Australia's tough new anti-tobacco marketing laws, which among others ban logos on cigarette packs, may be see similar action in India as well.
Private lenders ICICI Bank and HDFC Bank fell around 1.2 per cent each on concerns that food inflation, a key metric watched by RBI, hasn't softened even as July WPI data eased.
Metal stocks like Hindalco, Sterlite and Tata Steel fell in 2-3 per cent range on concerns of lower Chinese demand. Overall, 20 stocks in Sensex dropped while 10 ended higher.
The Sensex's losses would have been higher if it was not gains in Hero MotoCorp and M&M that notched up smart gains of around 2 per cent each. RIL rose 2.04 per cent on reports that Goldman Sachs has said that the energy major can potentially become a USD 100 billion stock by fiscal 2017.
Brokers said the market sentiment turned bearish as investors are worried whether key economic reforms to revive GDP growth will occur soon. The market breadth turned negative as 1,521 shares ended with losses while 1,306 finished lower.
Some foreign investors were seen booking profits from the recent two days of gains, besides a weakening global tend on concerns of deepening Eurozone debt crisis, they added.
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Meanwhile, the 50-share NSE index Nifty lost 17.40 points, or 0.32 per cent to close at 5,362.95.
While Asian stocks ended mostly higher, European indices declined in their afternoon deals. (MORE)