By Abhishek Vishnoi
MUMBAI (Reuters) - The Sensex and the Nifty fell on Tuesday to snap a three-day winning streak as stocks of blue chips such as Larsen and Toubro fell due to profit-taking after upbeat U.S. economic data raised fears the Federal Reserve would reduce its monetary stimulus.
Even a sharp improvement in the current account deficit in the July-September quarter and the finance minister's comment that recovery was underway, failed to sustain the momentum that had sent shares to near a month-high on Monday.
Traders say caution is likely to prevail ahead of the state election results to be announced on Sunday and U.S. monthly employment data, due out on Friday, which could help provide additional clues about potential Fed tapering.
"Taper is at least 2 months away and the election outcome is coming in just a few days. I think election results would decide the fate of year-end money which is currently waiting to be deployed," said Deven Choksey, managing director at K R Choksey Securities.
The BSE Sensex fell 0.21 percent, or 43.09 points, to end at 20,854.92, retracing from nearly a month-high level hit on Monday.
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The broader Nifty lost 0.26 percent, or 16 points, to end at 6,201.85.
The falls also tracked Asian shares lower after the Institute for Supply Management said its index of U.S. factory activity rose in November to its best showing since April 2011, while the pace of hiring in the sector also accelerated. In addition, construction spending increased 0.8 percent in October, the highest since May 2009.
Among domestic blue chip shares, Larsen and Toubro Ltd (L&T) fell 1.4 percent while HDFC Bank Ltd ended 0.8 percent lower.
Lenders Kotak Mahindra Bank Ltd fell 1.5 percent while ICICI Bank Ltd ended 0.3 percent lower.
The lenders were also weighed down by the Indian central bank's plans to introduce increased capital requirements by 2016 for banks regarded as too big to fail, and make them subject to greater regulatory oversight.
Bajaj Auto Ltd dropped 0.4 percent after the company said its November auto sales fell 17 percent to 310,591 units.
Rival Eicher Motors Ltd ended 2.8 percent higher after earlier marking an all-time high of 5,340 rupees, on speculation of increased buying from overseas investors, dealers said.
(Editing by Anupama Dwivedi)