The 30-share S&P BSE benchmark Sensex fell 348.04 points, or 1.36 per cent, to end at 25,228.17 and NSE 50-share Nifty dropped 107.80 points, or 1.41 per cent, to 7,542.10.
The fall, led by oil and gas stocks, was the biggest since January 27, when the Sensex dropped by 426.11 points and the Nifty slipped 130.90 points.
The rupee declined by 52 paise to end at 59.77 against the US dollar on rising risk aversion after global oil prices surged on supply concerns over the unrest in Iraq. Standard gold (99.5 purity) rallied by Rs 350 to end at Rs 27,205 per 10 grams following a spurt in the global markets.
Analysts said higher fuel costs may push up inflation at a time when Prime Minister Narendra Modi was taking efforts to curb consumer prices and revive economic growth from near the weakest level in a decade. Oil headed for its biggest weekly advance since July in London as escalating violence in Iraq threatened supplies from OPECs second-largest producer.
The spike in oil overshadowed government data on Thursday showing consumer prices slowed more than economists projected and factory output expanded. While the RBI had earlier signalled that it could ease monetary policy if inflation slows faster than anticipated, the rise in crude oil could turn out to be a dampener.
Dipen Shah, head, Private Client Group Research, Kotak Securities, said, Markets ended the week with a big fall on Friday. Crude price concerns caused by the geo-political concerns in Iraq marred sentiments in the markets. Several stocks, which have had a heady run over the past few weeks, fell sharply on profit-booking.
The WPI numbers will be released on Monday and it will be a data point to watch out for. Tension in Iraq and downbeat US economic data may be the reason for the significant decline in rupee. Demand of dollar by oil importers and profit booking by FIIs was seen in the market, said Kiran Kumar Kavikondala, CEO, WealthRays Securities.