Bank shares were the top losers on concerns that NIMs would take a hit on recent cut in base rate.
Benchmark shares indices ended lower for the sixth straight session amid sell-off in late trades after the rupee hit a fresh 2-year low while growth concerns in China dampened investor sentiment.
Further, persistent selling by foreign institutional investors at higher levels and weak monsoon forecast also weighed on the markets.
"Bank shares were hit on worries that net interest margins could be hurt on the back of cut in base rates while the weakening rupee which is fast approaching 67 levels dragged the markets."
"Further, growth concerns in China and fears of further devaluation of the yuan also aided the decline," said Jagannadham Thunuguntla, Head of Fundamental Research at Karvy Group.
The 30-share Sensex dropped 308 points to end below 25,000 at 24,894 and the 50-share Nifty slipped 96 points to end at fresh 13-month low of 7,559. In the broader markets, the BSE Mid-cap and Small-cap indices closed 1.8-2.2% lower.
Market breadth ended weak with 1,984 losers and 691 gainers on the BSE.
China has revised its annual economic growth rate in 2014 to 7.3% from the previously released figure of 7.4%, the National Bureau of Statistics said on Monday.
The US job creation in August was the slowest in 5 months and significantly undershot consensus expectations of about 220,000.
However, there was a notable fall in the unemployment rate to 5.1%, the lowest level since April 2008.
The Indian rupee dropped 37 paise to hit a fresh 2-year low of 66.83 against the US dollar compared to the previous close on dollar demand from banks and weakness in domestic equities.
Sectors and stocks
All sectoral indices on the BSE ended with losses with Metal and Healthcare indices emerging as the top losers.
Metal shares weakened on concerns that sluggish economic growth in China, the world's largest consumer of metals, would hurt export demand going forward. Jindal Steel, NMDC, Vedanta, Hindalco, Coal India, Hindustan Zinc and Tata Steel ended down 1.4-4.2% each.
Healthcare shares ended lower on profit taking at higher levels. Lupin and Sun Pharma ended 2.7% lower.
Dr Reddy’s ended down 2.8% after the company decided to recall over 55,000 bottles of Amlodipine besylate and Atorvastatin calcium tablets, used to treat high blood pressure and cholesterol related diseases, in the US market.
Among the index heavyweights, ITC eased 1.6%, Infosys dropped 1.2% while L&T ended down 1.9%. Tata Motors ended flat with positive bias.
The company has introduced its first luxury armoured vehicle new Range Rover Sentinel that can provide protection against a wide variety of attacks.
State-owned oil explorer ONGC ended marginally higher after overseas investment arm -- ONGC Videsh (OVL) -- has acquired a 15% stake in Vankor oil field in East Siberia, Russia’s second-largest oil field from Rosneft for about $1.35 billion. Capital goods majors BHEL and L&T are down 0.5-1% ahead of the IIP numbers slated to release later during the week.
Among other shares, Abbott India ended 2.5% higher in an otherwise weak market.
Post June quarter results, shares of pharmaceutical company outperformed the market by gaining 20% from Rs 4,479 on August 11, 2015, compared to 10% fall in the S&P BSE Sensex.
Shares of Amtek Group companies witnessed fresh selling pressure and ended at their multi-year lows on the bourses.
Amtek Auto ended down 11%, Castex Technologies and JMT Auto dropped 5% while Metalyst Forgings ended down 4.9%. Natco Pharma ended down 3.6%.
The Reserve Bank of India (RBI) approved hike in investment limit of the company's paid-up capital by overseas investors.