After opening weaker, the BSE benchmark index witnessed choppy trade for most of the session. It touched the day's high of 18,580.48 but failed to sustain gains with TCS, RIL and ICICI Bank falling in 1-3 per cent range.
There was, however, good buying support in Bhel, SBI and Gail that rose in 3-5.5 per cent range with PSU shares among the best performers today.
Jindal Steel, Infosys and Bharti Airtel saw some demand.
Brokers said sentiment soured on reports that soaring vegetable prices pushed up the retail inflation to double digits at 10.03 per cent in August, up from 9.86 per cent in the previous month.
The 30-share index finally closed at 18,496.01, down 46.30 points or 0.25 per cent. In the previous nine days, Sensex rose over 1,200 points to levels last seen in July, 2011.
The 50-share NSE index Nifty also fell by 9.95 points, or 0.18 per cent, to 5,600.05, after touching high of 5,620.55.
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"Retail inflation hasn't come down. While rain deficit has now come down to 6 per cent, inflation is still a major worry...Market was also down as some profit booking was seen in RIL," said Kishor P Ostwal, CMD, CNI Research Ltd.
RIL fell 2.11 per cent to Rs 855.20 after the price yesterday rose above ongoing maximum buyback price of Rs 870.
Traders also said activity remain subdued ahead of market holiday on account of Ganesh Chaturthi tomorrow.
Across BSE indices, Oil&Gas fell 1.13 per cent, followed by IT (0.54 pc), Healthcare (0.22 pc), Metal (0.19 pc). The PSU index, however, gained 1.54 per cent today.
Globally, France's CAC, Germany's DAX and the UK's FTSE were down by up to 1 per cent in afternoon deals. Most Asian markets also ended lower.
Meanwhile, the rupee pared early losses and regained 53- levels on dollar selling by corporates.