The Sensex opened with a small negative gap of six points at 7,281, but soon moved up to a high of 7,306.
Selling commenced soon after, and intensified in late noon deals after reports appeared of co-ordinated blasts in London.
After hitting a low of 7,123 - a drop of 183 points from the intra-day high - the Sensex finally closed with a loss of 142 points (1.95%) at 7,145.
The Nifty closed at 2,179, at a loss of 49 points.
While 26 index scrips declined with a volume of 1.30 crore shares totalling Rs 740 crore, four advanced with a volume of 38 lakh shares for Rs 162 crore.
Reliance plummetted nearly 5% (Rs 31) to Rs 614. ONGC dropped 4.7% (Rs 45) to Rs 929. HLL lost nearly 3% (Rs 5) to Rs 158. ITC, however, was up Rs 4 at Rs 1,680.
Infosys was down more than a per cent (Rs 29) at Rs 2,318. Wipro declined over 3% (Rs 25) to Rs 710. Satyam and TCS also finished with losses today.
Ranbaxy lost over 2% (Rs 23) to Rs 1,049. Cipla and Dr. Reddy's also declined over 2% each.
HDFC declined 3% (Rs 27) to Rs 904. Hindalco dropped 3.7% (Rs 46) to Rs 1,211.
BHEL was down 3% (Rs 25) to Rs 867. HDFC Bank, Tata Motors, NTPC and Bharti also declined.
Hero Honda and Tata Steel, however, moved up to Rs 581 and Rs 354, respectively.
All the sectoral indices closed with steep losses today. The BSE Oil & Gas Index lost over 4% (137 points) to 3,267. The BSE PSU Index was down over 2% at 4,314.
Declines outnumbered advances 2:1 - out of 2,546 scrips traded, 1,646 declined, 834 advanced and 66 were unchanged today.
Videocon International dropped 6% (Rs 5) to Rs 80 after the announcement of the 5:1 merger ratio with Videocon Industries.
IndusInd Bank declined 5% to Rs 73. Karnakata Bank tanked 9% to Rs 107. Centurion Bank dropped 10% to Rs 13. South Indian Bank and Karur Vysya Bank also finished with steep losses today. Federal Bank, however, was up 3% at Rs 176.
Oil PSU scrips also declined sharply. Chennai Petro was down 4% at Rs 183. HPCL was down 2% at Rs 307. BPCL, Gail, IOC, Kochi Refineries and MRPL also slipped over 1% each.
Gujarat Gas gained 4.5% (Rs 39) to Rs 910. Financial Technologies continued its dream run, and moved up 6% to Rs 691.
Provogue, which was listed today at Rs 250 per share as against the IPO price of Rs 150, hit a high of Rs 299 and low of Rs 225 before finally closing at Rs 245. The counter logged a huge volume of over 55 lakh shares.
Himachal Futuristic topped the volume chart with over 3.14 crore shares changing hands today followed by Reliance Capital (1.08 crore) and Essar Oil (83.56 lakh shares).
Reliance Capital was the most active counter with a turnover of over Rs 443 crore followed by Reliance (Rs 227 crore) and Provogue (Rs 146 crore).