Coal India, with a major weightage, fell short of the crease on the earnings front, which hit mood hard, brokers said.
Retail inflation for November eased to a two-year low of 3.63 per cent and wholesale inflation, slowing for the third month, was down at 3.15 per cent. But this was not enough to offset the worries as investors stayed cautious waiting for the outcome of the two-day US Fed meeting that concludes later in the day.
The gauge had gained 182.58 points yesterday.
The 50-share Nifty fell 39.35 points, or 0.48 per cent, to close at 8,182.45. Intra-day, it shuttled between 8,229.40 and 8165.10.
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"The market had mirrored the volatility in other emerging markets (EMs) and has settled below the 8,200 mark as investors remain cautious ahead of the Fed policy... Both CPI and WPI inflation declined in November due to currency shortage... Which may provide RBI room to ease interest rate," said Vinod Nair, Head of Research, Geojit BNP Paribas Financial Services.
Coal India suffered maximum losses, plunging 4.42 per cent to Rs 292.25 after the company yesterday reported a sharp 77 per cent fall in its consolidated net profit at Rs 600 crore for the September quarter.
Others that fell included ONGC 2.02 per cent, Power Grid 1.78 per cent, Cipla 1.59 per cent and ICICI Bank 1.55 per cent.
TCS, the country's leading software exporter, rose 0.32 per cent after Cyrus Mistry was removed as director yesterday with 93.11 per cent shareholders voting for his ouster.
The selling in metal, PSU, capital goods and FMCG was counterbalanced by buying in IT and realty. Metal fell by 1.70 per cent followed by PSU 1.65 per cent and capital goods 1 per cent while IT rose 0.63 per cent, realty 0.50 per cent and technology 0.36 per cent.
Second-line shares small-cap and mid-cap saw some selling and dropped by up to 0.85 per cent.
Key indices saw high intra-day volatility throughout the session on alternate bouts of buying and selling.
Elsewhere, Asian stocks ended mixed. Europe showed a mixed trend too ahead of the Federal Reserve's policy decision.
The market breadth remained negative as 1,733 ended lower,
905 closed higher while 149 ruled steady.
The total turnover rose to Rs 2,383.04 crore, from Rs 2,059.97 crore yesterday.
"Both the Sensex and the Nifty finally closed the day in the red, with marginal losses. Positive inflation data failed to cheer market participants as investors chose to adopt a note of caution and stay near the fence," said Karthikraj Lakshmanan, Senior Fund Manager, Equities, BNP Paribas Mutual Fund.