Fears over signs of escalation in global trade tensions along with outflows of foreign funds dragged the key Indian equity indices in the red for a second straight day on Wednesday.
In addition, disappointment over the Reserve Bank's decision to maintain its "calibrated tightening" stance and caution ahead of state Assembly elections impacted investors' risk-taking appetite.
However, RBI's monetary policy announcement sparked volatility. But later the indices recovered from the day's low as the central bank said it will continue with the liquidity infusion measures.
Till now, the RBI has injected durable liquidity through open market operation purchases to the tune of Rs 1.36 trillion in the current financial year.
Index-wise, the S&P BSE Sensex settled lower at 0.69 per cent, or 249.90 points, at 35,884.41 points, from its previous close of 36,134.31 points. It touched an intra-day high of 36,048.65 and a low of 35,777.81.
"Both the benchmark Sensex and the Nifty continued to trade the day on a weak note to finally close with losses of over 0.50 per cent," said Abhijeet Dey, Senior Fund Manager-Equities, BNP Paribas Mutual Fund.
"As per market expectations, the monetary policy committee (MPC) today kept the benchmark repo rate unchanged at 6.50 per cent."
However, the Nifty IT index ended with marginal gains.
On the currency front, the Indian rupee closed at 70.46 to a US dollar from its previous close of 70.49.
"Technically, with the Nifty breaking down from a narrow trading range, the underlying bias has turned weak. Further downsides are likely once the immediate support of 10,748 points is broken," said Deepak Jasani, Retail Research Head, HDFC Securities.
"The bulls can make a come back once the Nifty crosses the immediate resistance of 10,846 points."
Investment-wise, provisional data with the exchanges showed that foreign institutional investors sold stocks worth Rs 357.82 crore on Wednesday while domestic institutional investors sold Rs 791.59 crore of shares.
Top gainers on the Sensex were Hindustan Uniliver, up 2.07 per cent at Rs 1,845.60; HDFC, up 1.75 per cent at Rs 1,973.20; HDFC Bank, up 0.51 per cent at Rs 2,099.45; Reliance Industries, up 0.29 per cent at Rs 1,154.85; and Power Grid, up 1.38 per cent at Rs 187 per share.
The laggards were led by Sun Pharma, which continued to lose heavily as it shed 6.59 per cent on Wednesday, reflecting concerns among the investors over probe by SEBI on several charges of corporate disclosure and insider trading.
The stock lost over 15 per cent in just the three trading sessions starting from Monday.
It was followed by Tata Steel, down 4.27 per cent at Rs 515.30; Tata Motors(DVR), down 3.85 per cent at Rs 92.50; and Vedanta, down 3.74 per cent at Rs 198.45, and Tata Motors, down 3.70 per cent at Rs 169.20 per share.
(With inputs from agencies.)