Sudden fall in the later half pushed Indian shares into the red on Tuesday as the benchmark BSE Sensex plunged by 541 points to its two-week low of 25,651.84 after nervous buyers withdrew swiftly on sell-off in Europe.
The NSE Nifty also dropped 165.10 points to 7,812.00 ahead of the September derivatives expiry on Thursday.
European market, which is under pressure after the US Fed's decision to hold the rates, was lower with indexes in France, Germany and the UK tumbling by up to 3 per cent.
Gaurav Jain Director of Hem Securities said: "Indices slipped in deep red in line with European peers, China worries, profit-booking and unwinding of positions ahead of September derivative contracts expiry."
Small-cap and Mid-indices were also sharply lower between 1.21 per cent and 1.57 per cent.
After starting on a firm note, the 30-share Sensex cracked under all-round selling and ended the day at 25,651.84, down 541.14 points or 2.07 per cent.
This is the index's lowest closing since September 10.
The NSE Nifty hit a low of 7,787.75 before settling lower by 165.10 points or 2.07 per cent at 7,812.
Traders said that sentiment was also under pressure after Asian Development Bank said that weaker growth in China this year is expected to cause a slowdown in the rest of Asia.
"With F&O expiry round the corner... the reluctance seen early in the day to push above last week s peaks, turned into a sharp sell off," said Anand James Co Head Technical Research Desk at Geojit BNP Paribas Financial Services.
Fresh weakness in the rupee, which fell to Rs 66 against the dollar in the intra-session, too took its toll.
Stocks in the metal space suffered the most after the entire base metal pack retreated at the London Metal Exchange (LME) on mounting global stock amid renewed concerns over slowing growth in China, the biggest consumer of metals.
The big losers in the metal segment included Vedanta, Hindalco and Tata Steel. Coal India, Tata Motors, NTPC, L&T and Axis Bank also lost big time.
Bucking the trend, Asian markets settled in the green, with Shanghai closing 0.92 per cent higher while Hong Kong's Hang Seng gaining 0.18 per cent.
Markets in Japan remained shut on Tuesday for a public holiday and will reopen on Thursday.
In the domestic market, 26 scrips out of the 30-share Sensex pack ended lower.
Pramit Brahmbhatt Veracity Group CEO said: "Blue-chips slipped down tracking the fall in global equities as the steep fall in European equities forced investors to stay away from equities. Concern over slow global growth and lingering Fed rate hike hammered the global equity market."
Major loser were Vedanta (6.29 pc), Hindalco (6.22 pc), Coal India (5.40 pc), Tata Motors (4.81 pc), NTPC (4.58 pc), Larsen (4.34 pc), Axis bank (3.57 pc), RIL (3.45 pc), HDFC (3.24 pc), ICICI Bank (3.13 pc) and Tata Steel (3.02 pct).
Among BSE sectoral indices, metal fell by 4.24 per cent followed by capital goods (3.10 pc), power (3.09 pc), bankex (3.04 pc), realty (2.54 pc), auto (1.73 pc) and oil&gas (1.27 pc).
The market breadth turned negative as 1,719 stocks ended in the red while 970 finished higher and 107 ruled steady. The total turnover rose to Rs 2,728.85 crore from Rs 2,357.71 crore on Monday.