The BSE Sensex fell as much as 1.9 percent on Monday, touching a near 2-1/2-year low, as investors continued last week's selloff on mounting concerns that growth in Asia's third-largest economy is fast losing steam.
Banking stocks led the fall, as the market weighed up the impact of potential rating agency downgrades for European countries that would compound the continent's debt crisis.
"The big concerns on a local and international level are not going away," said Nitin Khandkar, founder of Nitin Khandkar Institutional Research.
"Recent economic indicators have been gloomy, the advance tax numbers for the last quarter aren't great, and a pause in interest rate hikes just wasn't enough for the market."
At 12:11pm (0641 GMT), the main 30-share BSE index was down 1.41 percent at 15,273.99. All but two of its components were in the red. It earlier dropped to 15,202.35 -- its lowest since August 2009.
The index fell 4.5 percent in the previous week to its lowest close in more than two years.
The Reserve Bank of India on Friday opted to pause an aggressive tightening cycle that involved lifting rates 13 times since March 2010, as the economy tussles with a worrying combination of weak growth and high inflation.
ICICI Bank, India's biggest private bank, led the losses, falling as much as 4.6 percent to 645 rupees -- its lowest level since June 2009.
Benchmark heavyweight State Bank of India, the country's largest lender, slipped as much as 4.4 percent to 1,605.50 rupees -- its lowest since July 2009.
Stocks in India's flagship software services industry also fell, led by market-leader Tata Consultancy Services, which slid as much as 2.7 percent. Shares of Infosys and Wipro, the industry's No. 2 and 3, fall as much as 2.5 percent and 2.8 percent, respectively.
The $76 billion IT sector gets more than 90 percent of its revenues from overseas clients, and counts the United States and Europe as its biggest markets.
The broader 50-share NSE index was down 1.48 percent at 4,582.90.
In the broader market, declining stocks outnumbered gainers by more than 7:1.
Asian stocks and US index futures fell, with South Korean shares tumbling as much as 5 percent, after North Korea announced the death of leader Kim Jong-il, raising fears of regional instability.
MSCI's broadest index of Asia Pacific shares outside Japan extended losses to stand down 2.6 percent, while Tokyo's Nikkei stock average fell 1.3 percent.
Stocks on the move
* Shares in Apollo Hospitals extended gains for a second straight session, rising as much as 2.9 percent on Monday after the company clarified on the shares it allotted to its promoters on conversion of warrants.
* Cash-strapped Kingfisher Airlines rose as much as 3 percent before slipping back into negative territory after SBI said lenders were trying to help the carrier.
Top three by volume
* Suzlon Energy on 10.1 million shares
* Unitech on 8.0 million shares
* Lanco Infratech on 7.5 million shares
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