The NSE Nifty ended 89.40 points, or 0.83 per cent, lower at 10,710.45.
Stocks spiralled lower for the second straight day on Tuesday, tracking a sell-off across global markets after the US and China reignited their trade dispute.
The BSE Sensex plunged around 262 points to end at a two-week low of 35,286.74, while the broader Nifty dropped 89 points to 10,710.45.
Asian markets nosedived after US President Donald Trump threatened to impose additional tariffs on Chinese goods and Beijing vowed to retaliate, fanning fears of a full-blown trade war between the world's two largest economies.
Unabated selling by foreign funds and a weak rupee added to the gloom, brokers said.
The 30-share Sensex barometer opened positive, but soon fell on across-the-board selling. It finally settled at 35,286.74, down 261.52 points, or 0.74 per cent. This is its lowest closing since June 6, when it had ended at 35,178.88.
The NSE Nifty ended 89.40 points, or 0.83 per cent, lower at 10,710.45.
Foreign portfolio investors (FPIs) sold shares worth a net Rs 754.43 crore, while domestic institutional investors (DIIs) picked up equities worth Rs 824.10 crore yesterday, as per provisional data.
"Escalating trade disputes between US and China is impacting global market and the ripple effect dented the domestic market sentiment.
"Lack of fresh triggers and weakening rupee may lead the market to consolidate further. Consolidation in oil price in expectation of gradual increase in output ahead of OPEC meet may provide some support to INR," said Vinod Nair, Head of Research, Geojit Financial Services.
Vedanta was the biggest loser in the Sensex pack, sinking 3.55 per cent, followed by Adani Ports that fell 2 per cent.
Other laggards included M&M, RIL, IndusInd Bank,
Sun Pharma, Bajaj Auto, Infosys, SBI, Maruti Suzuki, Tata Motors, Wipro, Axis Bank, Tata Steel, L&T, Asian Paints, Coal India, Kotak Bank and Hero MotoCorp, falling up to 1.94 per cent.
Only ITC, HDFC Bank, HDFC Ltd and ONGC managed to close in the green.
All sectoral indices finished with losses. Metal fell 1.69 per cent, followed by realty (1.33 per cent), oil and gas (1.22 per cent), IT (1.21 per cent), teck (1.08 per cent), PSU (1.07 per cent), auto (1.06 per cent), power (1.02 per cent), consumer durables (0.93 per cent), capital goods (0.91 per cent), infrastructure (0.71 per cent) and banking (0.64 per cent).
Selling pressure also gathered momentum in broader markets, with the BSE small-cap index falling 1.29 per cent and the mid-cap index losing 0.98 per cent.
In Asia, Hong Kong's Hang Seng tanked 2.94 per cent, Japan's Nikkei declined 1.73 per cent and China's Shanghai Composite Index slumped 3.82 per cent.
Taiwan and Singapore also closed with losses.
European markets too were down in their early session. Frankfurt was trading lower by 1.58 per cent, while Paris CAC 40 fell 1.16 per cent. London's FTSE was down 0.74 per cent.
