The markets were also cautious ahead of the earnings season starting this week and the release of minutes of the US Federal Reserve's meeting, at which it decided to start tapering the stimulus programme from this month.

ICICI Bank, Infosys and Reliance Industries contributed the most to the decline in the Sensex. Tata Power, State Bank of India and Hero MotoCorp led 20 index stocks lower.

Six of the 12 BSE sectoral indices fell, including bank, realty and power stocks.

The Sensex opened on a higher note and then immediately fell and remained in negative terrain for the rest of the day. It closed at 20,787.30, a fall of 64.03 points or 0.31 percent. The index has lost 383 points in the past four sessions. In December 2013, it had gained 378.75 points.

The 50-share CNX Nifty on the National Stock Exchange moved down 19.70 points, or 0.32 percent, to 6,191.45.

The HSBC/Markit Purchasing Managers Index for the services industry fell to 46.7 in December from 47.2 in November as new orders declined. It was the sixth consecutive monthly drop in output and the longest period of continuous reduction since the 2008/2009 global financial crisis.

"This news further dampened the market sentiment, which was already trading lacklustre. Weakness in global markets and profit booking at higher levels led to selling pressure," said Nidhi Saraswat, Senior Research Analyst at Bonanza Portfolio Ltd.

Asian bourses slumped after a gauge of China's services industry dropped, while European markets opened lower.

Local sentiment was affected after foreign funds sold equities for the first time this year. Foreign institutional investors sold shares worth a net Rs 18.06 crore on Friday, according to provisional data from the stock exchanges.

The rupee's decline also weighed on the market. The rupee traded at 62.35 against the dollar when the stock markets closed.

(Agencies)

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