The Sensex and Nifty recovered in last hour of trade on Thursday only to close lower amid expiry of February futures and options contracts. Indian market fell after the minutes of the central bank's latest policy meeting showed inflation concerns continued, while the rupee fell to its weakest level against the dollar since November.
While the Sensex closed 25 points or 0.07% lower to 33,819 level, the Nifty ended 14 points lower at 10,382 level.
Top losers on the Sensex were ONGC (2.26%), Dr Reddy's (2.19%) and PowerGrid (1.85%). The BSE realty index was up 0.7 percent, IT index rose 0.59 percent, Teck index added 0.23 percent.
The minutes from the February 6-7 meeting showed Reserve Bank of India's monetary policy committee members were concerned about accelerating inflation as well as uncertainty about the strength of an economic recovery.
"The minutes of the RBI meeting suggest RBI is still concerned about inflation ... all these have weakened sentiment further," said Neeraj Dewan, director, Quantum Securities.
BSE oil & gas index fell 1.46 percent, power index dropped 1.11 percent, PSU index down 1 percent, consumer durables and auto indexes slide 0.9 percent reflecting weakness in the market.
"Domestic sentiment has become weak and global sentiment is also rubbing off to some extent," Dewan added.
Market breadth was negative with 1020 stocks rising against 1701 stocks falling on BSE. 163 stocks were unchanged.
Among financials, fraud-hit Punjab National Bank continued to witness sell-off, falling as much as 3 percent. Jefferies has cut its target price on the stock. The stock closed 2.09 percent lower to 114.65 on BSE.
European markets fell in early trading. Britain's FTSE 100 slid 1 percent to 7,205.21 and Germany's DAX lost 0.5 percent to 12,384.33. France's CAC 40 retreated 0.4 percent to 5,279.97. Wall Street was poised to open lower. Dow futures fell 0.3 percent to 24,716.00 and broader S&P 500 futures dipped 0.1 percent to 2,695.80.
Japan's benchmark Nikkei 225 index sank 1.1 percent to close at 21,736.44 and South Korea's Kospi shed 0.6 percent to 2,414.28. Hong Kong's Hang Seng lost 1.5 percent to 30,965.68 but the Shanghai Composite jumped 2.2 percent to 3,268.56, fueled by pent-up demand from investors in mainland China, where markets reopened after a weeklong holiday. Australia's S&P ASX 200 edged up 0.1 percent to 5,950.90. Taiwan's benchmark fell and Southeast Asian indexes were mostly lower.