Markets ended near the day's low on witnessed in auto and IT stocks.
Cues from the European peers also dampened investor sentiments, taking the Sensex to a low of 18,449 - down 93 points from the previous close.
The index finally ended down 55 points at 18,507.
NSE Nifty ended at 5,567, down 14 points.
European bourses were in th red. CAC has shed 1.2%, while DAX and FTSE are down around 1% each.
Elsewhere, in Asia, markets ended in the negative terrain on worries that the US government may not be able to settle on an agreement to cut the fiscal deficit.
Hang Seng slipped 0.3% to 21,804. Markets in New Zealand and Seoul Composite wer down 0.6% each.
Among other news, monsoon rains were above average in June 2011, but dropped to 3% below average after slowing in the first week of July.
Hindustan Unilever added 1% to Rs 332. Tata Global, Nestle India and Colgate Palmolive advanced in trades as well.
IT stocks fell on US and European debt concerns. Wipro shed 0.5% on reports company's Rs 1182 crore contract with Employees' State Insurance Corporation for IT services is facing technical problems with the government health insurer's internet portals.
TCS and Infosys, which came out with quarterly numbers last week, were down 1-2% each. TCS had gained 2% on Friday after announcing the Q1 results. Infosys, however, has not been able to recover post results.
Fears of a high interest rate, which would further reduce demand for credit, dragged bank stocks lower. BSE bankex was unchanged at 12,845.
Indusind Bankled the losers list in the sector, followed by ICICI Bank, Axis Bank, Union Bank and Bank of Baroda. SBI ended flat at Rs 2,472.
Metal stocks rose, mirroring cues from LME. Hindalco jumped 3% to Rs 182. JSW Steel, Sterlite, Hindustan Zinc and SAIL were up in trades.
Airline stocks rose in the morning after state-owned oil marketing companies (PSU OMCs) hiked jet fuel or aviation turbine fuel price by a marginal Rs 78 per kilolitre with effect from Friday midnight.
However, all three aviation stocks erased gains and ended down 1-2% each.
Meanwhile, around 34 stocks have touched their respective life-time highs on the BSE this morning - including stocks like HDFC Bank, Nestle India, Cadila Healthcare, Petronet LNG and Amara Raja Batteries.
HDFC Bank hit a new high of Rs 519 on the BSE. Last week, the bank had sub-divided face value of its equity shares to Rs 2 from Rs 10 paid-up earlier. Tomorrow, the bank is scheduled to announce its quarterly results.
Fertilizer shares went up on hopes that the government is considering changes in the urea policy. Aries Agro, Dharamsi Morarji, Deepak Fertiliser, GNFC and Coromandel International edged up in trades.
Textiles stocks were in the buzzer on hopes that the trade deal between India and 27-nation European Union will benefit the exporters of textile and readymade garments the most. EU negotiators arrived in Delhi to continue the final leg of talks that started on July 13 in Brussels.
Among individual stocks, Gokaldas Exports, Vardhman Textiles, Sambandam Spinning, Suryalakshmi Cotton, Nahar Spinning, Indo Rama Synthetics and RSWM are trading higher by 2-5% each on the Bombay Stock Exchange.
BSE market breadth was negative. Out of 3,012 stocks traded, 1,546 advanced while 1,322 declined in trades.
