After rising to 25,548.33 in morning trade on the back of better-than-expected Q1 earnings by Infosys, the Sensex fell back to trade lower by 197.61 points, or 0.78 per cent, to 25,175.14 at 1230 hours.
Major losers that dragged the Sensex down were metal, power, PSU, capital goods and oil & gas stocks.
The 30-share index had lost 727.33 points in the previous three sessions.
Brokers said emergence of profit-booking by funds in stocks that had recently witnessed gains and a weak trend in global markets as fears over eurozone debt resurfaced with a payment crisis at Portugal's biggest listed bank, led to the plunge in markets.
Bucking the trend, shares of IT major Infosys, after surging over four per cent in morning trade, was 1.01 per cent higher at Rs 3,326 after the company reported a healthy 21.6 per cent increase in consolidated net profit for the quarter ended June 30.
Among other Asian markets, Hong Kong's Hang Seng was down 0.33 per cent, while Japan's Nikkei shed 0.34 per cent.
Similarly, the National Stock Exchange index Nifty declined 59.00 points, or 0.77 per cent, to 7,508.75 after recovering to 7,625.85 in early trade.