The 30-share Sensex, which had lost 168 points in last two trading sessions, plunged further by 320.11 points, or 1.87 per cent to 16,831.08, its lowest level since January 30.
Similarly, the 50-share NSE Nifty dropped by 101.55 points, or 1.96 per cent to 5,086.85 led by a steep fall in stocks of capital goods and banking sectors.
Brokers said the Indian rupee plunging to fresh four month low, spur concerns the government might find it hard to cool inflation and curb the fiscal deficit.
The rupee slid as low as 53.84 per dollar, the weakest since December 15, lifting the cost of imported oil, fueling inflation and reduce scope to cut interest rates.
A weak trend in the Asian region and lower opening in Europe ahead of US jobless data and elections in France, Greece, Italy and Germany this weekend, further fuelled the selling pressure.
The domestic stock market received another jerk as Reliance Industries dropped by 1.68 per cent to Rs 726.45 following reports that Oil Ministry has hiked the penalty for falling natural gas output from KG-D6 fields.
Infosys dropped by 1.74 per cent to Rs 2,441.15 on fears Eurozone debt crisis might affect revenue of software exporting companies. IT companies get more than 50 per cent of their revenues from the US and Europe.
The BSE Capital Goods sector index suffered the most by losing 3.74 per cent to 8,908.74 followed by BSE Banking index that closed 3.17 per cent down at 11,284.03.
