After a day's breather, the Sensex resumed its downward spiral by taking a hit of 201 points to 26,525.46, tracking a global sell-off as Bank of Japan refrained from adding more stimulus and the Fed lowered its growth forecast for the US economy.
The market swung in a range of 400 points as volatility remained high in view of upcoming Brexit referendum on whether the country should exit the European Union.
Country's biggest carmaker Maruti Suzuki plunged nearly 3 per cent to Rs 4,084 on costlier yen following BoJ's meet.
In broader markets, the small-cap index fell 0.55 per cent while mid-cap ended 0.37 per cent lower.
"The US Federal Reserve signalled it is likely to adopt an even slower approach to raising rates on weaker job creation at home and fresh worries about economic events abroad," said Shreyash Devalkar Fund Manager Equities BNP Paribas MF.
The Fed also trimmed its US GDP estimate to 2 per cent from 2.2 per cent for the year.
The 30-share Sensex after opening lower continued to slide and hit a low of 26,314.91. However, on value-buying in some bluechips, it managed to trim half of its losses and closed down by 200.88 points or 0.75 per cent at 26,525.46.
The NSE Nifty cracked the crucial 8,100-mark during the day, but managed to recoup some losses to finally settle 65.85 points or 0.80 per cent down at 8,140.75.
State Bank of India's subsidiaries continued their rally for a second straight session, surging up to 20 per cent.
State Bank of Mysore jumped 19.99 per cent, State Bank of Bikaner and Jaipur surged 15.74 per cent and State Bank of Travancore zoomed 15.21 per cent.
Yesterday, the Union Cabinet had cleared the merger of SBI with its associate banks that would pave the way for the state-owned lender to become a global banking giant.
The BoJ inaction on stimulus after its two-day monetary policy review led Asian markets tumble across the region, with Japan Nikkei 225 index falling 3.05 per cent.
Other indices from the region like in China, Hong Kong, South Korea, Singapore and Taiwan dropped between 0.50 per cent and 2.75 per cent.
Europe was also lower on concerns over Brexit with indices in France, Germany and the UK down by 0.79 per cent to 0.87 per cent.
In the domestic market, 19 scrips out of the 30-share Sensex pack ended lower while 11 finished higher.
Major losers were Maruti 2.93 per cent followed by Bharti Airtel (1.65 pc), ICICI Bank (1.54 pc), NTPC (1.53 pc), Hero MotoCorp (1.39 pc), Bajaj Auto (1.37 pc), ITC (1.36 pc), Dr Reddy's (1.33 pc), L&T (1.20 pc), BHEL (1.02 pc), Coal India (1.02 pc), Axis Bank (0.92 pc) and ONGC (0.89 pc) and Cipla (0.87 pc).
However, Asian Paints rose by 1.13 per cent, GAIL (1.08 pc), Wipro (0.59 pc), HUL (0.56 pc), Tata Motors (0.40 pc) and Sun pharma (0.27 pc).
The market breadth turned negative as 1,636 stocks ended lower, 963 closed higher while 167 ruled steady.
The total turnover fell to Rs 2,850.89 crore from Rs 2,948.02 crs yesterday.