MUMBAI The BSE Sensex fell nearly 4 percent on Tuesday, retreating from a 2-1/2 week closing high in the previous session, as blue chip shares slumped as fears of military tensions in the Middle East roiled global markets.
Russian radar detected two ballistic "objects" that were fired towards the eastern Mediterranean from the central part of the sea on Tuesday, state-run news agency RIA quoted the Defence Ministry as saying. The Defence Ministry declined immediate comment to Reuters.
Israel later said it had carried out a joint missile test with the United States in the area, as President Barack Obama pushed lawmakers to back his plan to attack Syria.
The Standard & Poor's reiteration of a more than one-in-three chance of a ratings downgrade for the country alongside rupee's fall past 68 to the dollar to near a record low struck last week also weighed on stocks.
The outlook remains weak as traders focus on waning hopes of a one-time diesel price hike and dwindling volumes on days of gains.
"As fiscal deficit concerns weigh, the market may remain rangebound for remaining part of 2013. Valuations are still high in the context of economic slowdown and rupee movements," said Dinesh Thakkar, chairman and managing director at Angel Broking.
The BSE Sensex fell 3.45 percent, or 651.47 points, to end at 18,234.66, losing almost the entire gains made over the last four sessions.
The broader Nifty slumped 3.77 percent, or 209.30 points, to end at 5,341.45, after earlier falling as much as 4.1 percent.
Among blue-chip shares, Reliance Industries Ltd (RELI.NS) slumped 6.3 percent, while ITC Ltd (ITC.NS) lost 6.2 percent.
Among private-sector banks, Axis Bank Ltd (AXBK.NS) tumbled 9.4 percent while Yes Bank Ltd (YESB.NS) slumped 9.4 percent.
The NSE bank index slumped 5.2 percent, marking its lowest close since January 2012.
Hero MotoCorp Ltd (HROM.NS) lost 6.3 percent adding to Monday's 1.1 percent fall after the company's sales for August, at 459,996 units, came in lower than analysts' estimates.
TVS Motor Co Ltd (TVSM.NS) fell 4.7 percent after Morgan Stanley downgraded the stock to "underweight" from "equalweight" saying the motorcycle maker could suffer from slowing volumes, rising capacity and low pricing power.
However, among stocks that gained, Tech Mahindra Ltd (TEML.NS) rose 1.8 percent to hit a 52-week high after India's central bank increased the foreign shareholding limit in the software services provider.
MphasiS Ltd (MBFL.NS) rose 2.2 percent as BNP Paribas upgraded the stock to "buy" from "hold" saying third-quarter earnings at the IT services provider were stronger than expected and on "cheap" valuations.
(Editing by Sunil Nair)