The 30-share BSE Sensex closed 42 points lower at 22,509 levels and NSE Nifty slipped over 16 points at 6,736 levels.
A recovery from lower levels in the last hour of trade led by buying in banking, metals and realty stocks, capped losses.
After contracting for 3 consecutive months, manufacturing activity saw an uptick in November, latest data from the HSBC Purchasing Managers' Index shows.
Weak PMI gives rise to fears of sub-8 per cent economic growth for the third quarter in a row.
Recent reform measures announced by the government expected to boost the sector.
Besides, the private sector employment activity also increased for eleventh month running, it said.
Global equity and bond markets, especially in Japan, were spooked on Thursday post the US Federal Reserve's comments on the third round of bond buying programme, commonly known as quantitative easing (QE3).
PMI contracts as power outages hit productivity, demand for exports slips.
The pace of activity in China's vast manufacturing sector quickened for the first time in 13 months in November, a survey of private factory managers found, adding to evidence that the economy is reviving after seven quarters of slowing growth.
The widely tracked HSBC Purchasing Managers' Index (PMI) rose to 54.2 points in December, the fastest in a month since April 2009.
The slowdown fear, as substantiated by various parameters like the HSBC Purchasing Managers' Index as well as the Index of Industrial Production, has gripped large companies but the smaller entities still seem hopeful of excellent growth. At least, tax collection figures show this trend.
Growth in export orders also eased marginally at the end of 2010, after registering a record rise in the previous month. However, the growth remained strong and comfortably above the historical trend.
The index, based on a survey of 500 companies, rose to 57.2 in October from 55.1 in the previous month and 57.2 in August. October was the 19th consecutive month in which the index has risen.
L&T, ONGC and banking scrips power gains in today's trade
GDP growth in November is the second-highest since January 2012 when it had expanded 5.7%.
Exports had risen over 11 per cent in July, year-on-year.
Indirect tax collections saw only a meagre 3.5 per cent growth, as mop-up from Customs fell sharply on account of a drop in imports.
Investor sentiment got a boost following remarks from the Russian President Putin that allayed fears of an imminent military conflict in Ukraine
Based on the evidence at hand, Modi's goal of scripting a broader, lasting upturn appears some way off, says Rajesh Kumar Singh.
The 30-share Sensex ended down 414 points at 25,481 and the 50-share Nifty slipped 119 points at 7,603.
Any change in rates would mean more volatility; else, poll outcome-fuelled rally expected to continue.
BSE Mid-cap index ended at a record closing high of 10499.86 and CNX Mid-cap index ended at a record closing high of 12672.85 levels.
The 30-share Sensex ended lower by 61 points at 29,122 mark and the 50-share Nifty slipped by 12 points to close at 8,797.
The optimism in global markets could help India as the rebound in GDP is expected to continue and get more broad-based.
The market breadth in BSE remains positive with 1,554 shares advancing and 1,196 shares declining.
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