The S&P BSE Sensex extended losses for the second consecutive session on Thursday, falling 231 points as both the domestic and global factors weighed on the sentiment.
The Sensex closed at 25,886 points, down 0.89%, while the 50-share Nifty fell 67 points, or 0.85%, to end at 7,864.
On the global front, markets traded weak as concerns intensified over the interest rate hike in the US after the comments from US central bank head Janet Yellen strengthened case for monetary tightening this month.
"Her speech reinforced the expectation that the Fed will start hiking in December (now 75% priced). Her key line was 'we must also take into account the well-documented lags in the effects of monetary policy', arguing that if the Fed waits too long 'we would likely end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting,'" said RBC Capital Markets in a note.
Domestically, a private survey data showed services activity in the country for November grew at its slowest pace in five months. The Nikkei/Markit Services Purchasing Managers' Index slumped to 50.1 in November from October's eight-month high of 53.2.
Among the BSE sectoral indices, FMCG, Consumer Durables and Metal were the biggest losers, while Realty index ended as the sole gainer.
Worries over imminent US Federal Reserve rate hike have also dragged the commodity markets down, with gold and crude oil prices declining sharply. While international gold prices tumbled to the lowest levels not seen since February 2010, crude oil prices slipped below $39.94 per barrel.
ONGC shares ended 2.6% lower at Rs 229.55 due to falling oil prices. Tata Steel stocks fells 1.3% on profit booking.
Auto and IT shares came under selling pressures due to disruption to their operations in flood-hit Chennai. While two-wheeler maker TVS Motors shares closed over 2% lower, Chennai Petroleum Corp shares fell over 5% on the back of incessant rains in Chennai, which is a major hub for automobile and IT companies.