MUMBAI (Reuters) - The BSE Sensex closed at its lowest level in nearly 14 months on Friday, falling 2.2 percent, following fresh worries of a global economic downturn that sparked a slide in markets globally.
The main stock index fell 4.9 percent for the week, its biggest weekly decline since the week of Oct. 26, 2010, and its second consecutive weekly loss.
World stocks sank for an eighth straight session of losses on Friday, with investors racked by worries about the slowing global economy and the dangerous spread of euro zone debt anguish into Italy and Spain.
In Asia, the MSCI's measure of Asian markets other than Japan tumbled 4.5 percent, while Japan's Nikkei lost 3.7 percent.
"We were largely drifting along with what is happening in the U.S. and European markets. If there is no big negative news coming out from Western markets, we could see a recovery," said Rikesh Parikh, Vice President, equities at Mumbai's Motilal Oswal Securities.
The 30-share BSE index ended at its lowest closing level since June 2010 at 17,120.39 points, down 2.2 percent -- its biggest single-day fall since early May. It had fallen to a near 14-month low of 16,990.91 at one stage. Only three of its components ended in positive territory.
Shares in frontline financial and technology firms suffered the most, prompted by worries over growth outlook and fears of a selloff by foreign investors. Top-listed firm Reliance Industries, a favourite with foreign funds, slid to its lowest close since April 1, 2009.
"I do expect that India would be one of the focus markets, once liquidity starts flowing again after a couple of weeks," said Ambareesh Baliga, chief operating officer at Way2Wealth Securities.
The Sensex has declined 15.6 percent so far in 2011, making it one of the worst performing markets globally.
Foreign funds' interest has wavered since the second half of July, paring net inflows over the past five weeks to $2.8 billion. So far in August, they have been net sellers of $304 million in equities.
"Unlike 2008, we think India could outperform regional markets from here, because of muted foreign inflows, significant underperformance and potential improvement in domestic macro data points," the Royal Bank of Scotland Asia Securities said in a note to clients on Friday.
Software stocks lost ground on worries the worsening situation in the United States and Europe -- key markets for Indian software firms, could hurt growth prospects.
Tata Consultancy Services fell 3.5 percent, while smaller rivals Infosys and Wipro lost 4.4 percent and 2.2 percent, respectively.
Financial stocks, already under pressure after last week's larger-than-expected 50 basis points increase in key rates by India's central bank, slipped further as investors fretted over growth prospects and cut positions in the sector.
Largest lender State Bank of India was down 1 percent, while private sector rivals ICICI Bank lost 2.7 percent and HDFC Bank fell 0.7 percent. The sectoral index slipped 1.7 percent.
Energy major Reliance Industries touched a low of 779 rupees, its lowest level in more than 28 months. The stock has already lost a quarter of its value so far in 2011, mainly weighed down by worries of slowing production from its showcase gas fields off India's east coast.
Auto shares declined on worries over demand growth after finance minister Pranab Mukherjee said on Thursday the government may consider cutting subsidy on diesel prices.
State-set diesel prices in India are nearly a third lower than petrol prices, boosting demand for diesel vehicles.
Mahindra and Mahindra fell 3.6 percent, Tata Motors lost 2.6 percent, while Bajaj Auto ended 1.4 percent lower.
Shares in Ranbaxy Laboratories, India's top drugmaker by sales, closed down 2.4 percent after the company reported a 25 percent fall in quarterly profit.
Shares in state-run Oil and Natural Gas Corp bucked the trend, ended up 1.4 percent to 277.05 rupees, after U.S. crude fell below $86 a barrel, heading for its biggest weekly drop since early May.
The drop in benchmark crude prices would help ease the firm's subsidy burden, which it shares in the form of discounts to refiners, analysts said.
The 50-share NSE index fell 2.3 percent to 5,211.25 points.
In the broader market, 1,271 declines far outnumbered the 191 advances, on heavy volume of about 805.2 million shares.
TOP THREE BY VOLUME ON NSE
* Lanco Infratech on 31.5 million shares
* Unitech on 29.2 million shares
* Jaiprakash Associates on 23.7 million share
STOCKS THAT MOVED
* Shares of state-run oil marketing firms including Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp rose between 1 to 3 percent each after
crude oil prices headed for its biggest weekly drop since May. India imports 80 percent of its crude oil requirements.
* Suzlon Energy, the world's No 5 wind turbine maker, fell 6.9 percent to 37 rupees, after it was fined $490,000 for pollution in the U.S state of Minnesota.
(Reporting by Prashant Mehra; Editing by Aradhana Aravindan)
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