Mumbai, Feb 27 (IANS) The Sensex and the Nifty finished in the red after rising during the early trading on Wednesday. The S&P BSE Sensex ended the day 68.28 points (0.19 per cent) lower at 35,905.43, while the Nifty 50 settled at 10,806.65, down 28.65 points (0.26 per cent).

The Sensex fell over 600 points at around 11 a.m. from its day's high following reports that Pakistani jets had violated the Indian air space.

It was seen as a major escalation in the already tense India-Pakistan ties following the February 14 Pulwama terror attack in which 40 CRPF troopers were killed.

A day after the Reserve Bank of India (RBI) removed Allahabad Bank, Corporation Bank and Dhanlaxmi Bank from the prompt corrective action (PCA) framework, PSU banks stocks surged on Wednesday.

"As the developments were spontaneous in nature, markets gave a knee-jerk reaction. However, markets have become mature and a major fall will only come if actual war breaks out," said Vinod Nair, Head of Research, Geojit Financial Services.

The markets erased opening gains over escalation in border tensions. The 10-year yield inched higher as any war-like situation will impact liquidity in the system, he said.

"While foreign institutional investor (FIIs) remained positive, market participants did not rule out the possibility of slowdown in inflow if the market remains range bound," Nair said.

According to analysts, given the spontaneous developments investors believed that volatility will continue in the short term.

The top index performers on the Sensex were Bharti Airtel, Bajaj Auto, Larsen and Toubro, Sun Pharma and Axis Bank, and laggards Tata Motors (DVR), Tata Motors, Vedanta, Hindustan Uniliver and Kotak Mahindra Bank.

--IANS ravi/arm/pcj