"Negative global cues amid concerns over a slowing world economy triggered by trade war between the United States and China dragged the market lower " said Geojit Financial Services Head of Research Vinod Nair.
Heavy selling was witnessed in auto consumer durables and banking stocks.
The NSE Nifty closed at 10 301.05 down 47 points or 0.45 per cent.
The benchmark S&P BSE Sensex which had opened at 34 651.82 settled at 34 299.47 down 174.91 points or 0.51 per cent from the previous close.
The Sensex touched an intra-day high of 34 711.68 points and a low of 34 233.50.
The broader markets the S&P BSE Mid-cap index declined by 0.16 per cent while the S&P BSE Small-cap index slipped 0.45 per cent.
"Volatility continued in the market. However short-term investors are accumulating select beaten-down stocks with an eye on the upcoming quarterly earnings " said Nair.
According to Deepak Jasani Head of Retail Research at HDFC Securities: "After Monday s bounceback markets corrected on Tuesday as they failed to sustain the gains."
"Major Asian markets have closed on a mixed note. European indices like FTSE 100 DAX and CAC 40 traded in the red. Technically while the Nifty remains in a downtrend we remain open to pullback rallies that could push the Nifty higher in the near term."
The Indian rupee closed at a new low of 74.39 (74.3950) per US dollar down 32 paise.
"Oil prices rebounded last night gaining almost 2 per cent. That has dented sentiment for the rupee " said Mustafa Nadeem CEO Epic Research.
The rupee depreciation may continue and may hit 74.6-74.8 he said.
Provisional data with the exchanges showed that foreign institutional investors sold stocks worth Rs 1 242.46 crore and domestic institutional investors bought stocks worth Rs 1 526.00 crore.
In the last six sessions beginning October 1 FIIs have sold shares worth about Rs 13 000 crore.
"The FII take cues from the macros of a country. India s current macro-economic senario does not inspire confidence due to the decline in the rupee " said Astha Jain Senior Analyst Hem Securities.
Also a rising interest scenario in the US has spurred investors to pull out their funds from emerging-markets including India.
The top Sensex gainers were Adani Ports up 4.52 per cent at Rs 318; HDFC up 2.59 per cent at Rs 1 713.45; Vedanta up 2.44 per cent at Rs 211.90; Tata Steel up 2.23 per cent at Rs 572.30 and Coal India up 1.96 per cent at Rs 272.90 from its previous close.
Major losers included Tata Motors down 13.40 per cent at Rs 184.25; Tata Motors(DVR) down 12.34 per cent at Rs 101.20; Asian Paints down 3.95 per cent at Rs 1 202; Maruti Suzuki down 3.07 per cent at Rs 6 691.90; and Hindustan Uniliver down 2.73 per cent at Rs 1 514.75 per share.
--IANS ravi-rv/shs
