The key benchmark indices extended losses in the late afternoon trades led by realty and banking stocks. The Sensex lost 270 points to trade at 16,728 levels and the Nifty fell 1.7 per cent to 4,967.
On the sectoral front, the BSE realty index plunged over 4 per cent and the banking index slid 2 per cent. The BSE metal index was also down 1.8 per cent.
Among the Sensex stocks, JP Associates was the biggest loser, down more than 5 per cent. DLF and Reliance Infra fell over 4 per cent each.
Asian stock markets turned in a mixed performance on Thursday as signs of weakness in the U.S. economy aggravated worries about the strength of the global recovery.
It was the second day of middling trade in Asia and followed modest losses on Wall Street. Oil and gold prices were little changed, while the dollar fell against the yen and rose against the euro.