The NSE benchmark Nifty ended below the psychological 9,800-level, extending losses for the seventh consecutive session following all-round selling pressure ahead of expiry of September derivative contracts.
Investors sentiment was also hit by a weakening rupee on concerns that foreign capital will move out sooner than later after Fed Chair Janet Yellen's comments.
Yellen, in a speech, said the US Federal Reserve should stick to gradual rate hikes despite the uncertainty about the inflation trajectory.
Broader and sectoral indices also posted a hefty loss.
Overseas, European stocks edged higher on growing expectations of another rate hike in the US before the year- end. Asian stocks were mixed amid positive economic data in China and as investors hoped for progress on major tax reform in the US.
The Nifty opened higher at 9,920.60 and moved in a range of 9,921.05 and 9,714.40 before ending at 9,735.75, dropped by 135.75 points, or 1.38 per cent, from last close.
It saw an intra-day movement of about 206.65 points.
On sectoral front, PSU banks dipped by 3.06 per cent, followed by realty 2.93 per cent, pharma 2.81 per cent, infra 1.88 per cent, energy 1.65 per cent, banks 1.60 per cent, metal 1.58 per cent, auto 1.57 per cent, private bank 1.54 per cent, financial service 1.45 per cent, FMCG 1.27 per cent, media 1.19 and IT 0.04 per cent.
Major index losers were Adani Ports, SBIN, Bank of Baroda, Sun Pharma, Ultratech Cement, Auro Pharma, Reliance, ACC, Dr Reddy and Vedanta Ltd.
Gainers were Infra Tel, TCS, Tech Mah, Ambuja Cement and GAIL.
The broader markets followed today's market trend as Nifty midcap and smallcap indices both fell 2.30 per cent and 2.33 per cent, respectively.
The market breadth, indicating the overall health of the market was in favour of losers. On the NSE, 1,433 stocks declined, 261 advanced and 62 stocks remained unchanged.
Foreign portfolio investors (FPIs) sold shares worth Rs 856.28 crore, as per provisional data released by the stock exchange.
Turnover in the cash segment rose to Rs 29,626.92 crore from Rs 26,493.45 crore yesterday. A total of 12,987 lakh shares changed hands in 1,03,70,359 trades.
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