Indian markets fell sharply reacting, in line with other Asian peers, to the downgrade to the US sovereign credit rating by Standard & Poor.

The rating agency downgraded by a notch to AA+ from AAA. All the sectoral indices were in the red and the benchmarks slipped to crucial support levels.

"The S&P on Friday downgraded the long-term debt rating of the US from AAA to AA+ and continued with its negative outlook. This could lead to some immediate turbulence in financial markets, however, investors are likely to focus on 'relative' ratings in their investment decisions.

With no precedence of such an event, financial markets could take some time to factor in the implications. In the meanwhile, asset allocation in the immediate near term may be biased more towards gold.

Indian equities could also see a downward momentum as risk aversion remains a dominant theme. Reflecting this, INR could also see some depreciation bias in the near term," said Kotak Securities report.

At 10:15 am; National Stock Exchange's Nifty was at 5066.05, down 145.20 points or 2.79 per cent. The broader index touched a high of 5096.40 and low of 5054.05 in trade so far.

Bombay Stock Exchange's Sensex was at 16790.21, down 515.66 points or 2.98 per cent. The 30-share index touched intraday low of 16759.45 and high of 16907.57.

"The selling was more technical on the back of sell-off across the globe. There could be further global correction due to sentiment damage and fears of downgrade.

The intermediate trend looks very bearish but strong support for Nifty future seen at 5060 - 5011 levels and unless we see a breakdown and close below these points, any decline should be used as a buying opportunity.

On the higher side Nifty will face strong resistance at 5370 levels and stability above this point might provide a big rally up to 5440 - 5500 in the near term..

For Sensex @ 17305, strong support exits at 16666 where investment buying is sensible and resistance seen at 17750," said Nirmal Bang report.

BSE Midcap Index was down 3.01 per cent and BSE Smallcap Index fell 3.58 per cent.

Amongst sectoral indices, BSE IT Index plunged 5.12 per cent, BSE Realty Index fell 4.73 per cent and BSE Metal Index declined 3.85 per cent.

HCL Tech (-7.83%), Wipro (-7.19%), DLF (-6.61%), Tata Motors (-6.21%) and TCS (-5.34%) were amongst the top Nifty losers.

GAIL (3.09%), ACC (0.71%), Ambuja Cements (0.62%) and BPCL (0.28%) were the only Nifty gainers.

Market breadth was negative on the NSE with 2644 losers against 597 gainers.

Meanwhile, the Asian peers were witnessing some profit booking. Nikkei 225 was down 2.34 per cent, Hang Seng fell 4.04 per cent and Taiwan Weighted slipped 3.48 per cent.