Weakness in the rupee, which fell below 62 level in day trade against the dollar also fueled negative sentiments.
The Sensex opened on a high note and touched all time high of 29,844.16 in early trade.
However, profit booking at record levels by FPIs and domestic funds dragged the index down to day's low of 29,070.48 points. The barometer settled at 29,182.95, down 498.82 points or 1.68 per cent.

The Sensex had gained more than 2,346 points, or over 8 per cent in last ten sessions and hit several record highs.      

The NSE Nifty too closed down by 143.45 points, or 1.60 percent, at 8,808.90 points. The 50-share index had hit an intra-day record high of 8,996.60, just missing the 9,000-mark in the opening trade.
The Nifty had gained about 675 points, or 8.15 percent, in previous 10 sessions.
Stock brokers said today's plunge was more of a technical correction as market was in an "over-bought" position and participants preferred to lighten positions by booking profits at record levels.

Coal India fell by 3.81 percent in the wake of the floor price for the company's share sale being set at a discount.
SBI was the biggest loser among Sensex stocks by falling 5.13 percent followed by ICICI Bank (4.95 percent) and HDFC Ltd (3.35 percent).

Other heavyweights like Axis Bank, Dr Reddy, Tata Motors, HDFC Bank, Hindalco, L&T, M&M, RIL, Sun Pharma, TCS, Bharti Airtel, Bajaj Auto, Maruti Suzuki and Hero MotoCorp also slipped.
Bucking the trend, stocks of Tata Power, NTPC, Sesa Sterlite, GAIL, Cipla, BHEL, Tata Steel and Wipro continued their upward journey on sustained buying activity.      

Meanwhile, foreign portfolio investors (FPIs) bought shares worth a net Rs 1,723.77 crore yesterday, as per provisional data.

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