The 30-share index closed down 252.88 points or 0.76 per cent at 32,923.12. This is the weakest closing since December 6 last when it settled at 32,597.18. The index had lost 741.94 points in the previous four sessions.
The broader NSE Nifty too fell below the 10,100 level by dropping 100.10 points to end at 10,094.25 due to foreign fund outflows amid rising bond yields on prospects of a 25-basis point hike in interest rate by the US Federal reserve this week.
Overall market sentiment remained weak after the RBI data released after market hours on Friday showed current account deficit (CAD) rising to 2 per cent of the GDP at USD 13.5 billion in the December quarter, up from 1.4 per cent in the year-ago period, due to a higher trade deficit.
The rupee also depreciated by 19 paise intra-day against the dollar at 65.13, which too had a negative influence.
Global cues too were weak as investors moved cautiously before the US Federal Reserve meeting, that is likely to raise US interest rates.
"Market continues to drag under global market volatility ahead of the FOMC meet tomorrow, where consensus hints at a 25bps rate hike. Bond yield remains at elevated levels and concern on trade tensions is influencing investors to book profit. Back home, rupee weakened due to widening current account deficit and led investors to remain cautious," Vinod Nair, Head of Research, Geojit Financial Services Ltd said.
"Widened fiscal deficit and fresh developments on the political front dampened the market sentiment", said Manoj Choraria, a Delhi-based NSE stock broker.
Tata Steel was the biggest loser among Sensex components, plunging by 4.24 per cent, followed by Bharti Airtel at 4.16 per cent.
Other laggards included Wipro, Yes Bank, Coal India, Infosys, Asian Paint, Bajaj Auto, Adani Ports, SBI, Tata Motors, Kotak Bank, Sun Pharma, ICICI Bank, Hero MotoCorp, Dr Reddy's, HDFC Ltd, Axis Bank, IndusInd Bank, RIL, ITC Ltd, ONGC, HDFC Bank and M&M that lost up to 2.60 per cent.
In contrast, counters like Power Grid, NTPC, L&T, Maruti Suzuki, Hindustan Unilever and TCS were the top performers in the Sensex pack, rising up to 1.12 per cent.
Metal stocks bore the brunt after prices of base metals dropped in global markets. Chinese ore fell to its lowest level since November on high inventories.
In the metal segment, counters such as NMDC, SAIL, Hindalco, JSW Steel, Jindal Steel and Power, Hindustan Zinc and Vedanta fell up to 6.47 per cent.
State-run oil marketing companies such as IOC and BPCL fell on reports that refiners may buy stake in GAIL. BPCL, HPCL and IOC declined up to 4.01 per cent.
Among sectoral indices, the BSE telecom index emerged the worst performer by falling 3.40 per cent, followed by realty, (3.01 per cent, metal (2.65 per cent), teck (2.08 per cent), IT (1.98 per cent), PSU (1.84 per cent), oil & gas (1.70 per cent), consumer durables (1.46 per cent), banking (1.09 per cent), healthcare (0.90 per cent) and infrastructure (0.86 per cent).
A similar trend was also extended to the broader markets as investors indulged in cutting down their portfolios, pulling down the small-cap index by 1.98 per cent, while mid-cap index declined 1.58 per cent.
In the Asian region, Japan's Nikkei was down 0.90 per cent, Singapore fell 0.39 per cent, while Hong Kong's Hang Seng was up 0.04 per cent. Shanghai Composite Index edged higher by 0.29 per cent.
In the Eurozone, Frankfurt's DAX was lower by 1.05 per cent, while Paris CAC 40 fell 0.82 per cent in their early deals. London's FTSE too was down 1.09 per cent.