softness in new domestic orders.
"Earnings would be more important from equity market's perspective as market has discounted some cooling off in inflation. We are expecting some positive surprises in Oct-Dec results," said Sudip Bandyopadhyay, managing director at Destimoney Securities Pvt Ltd.
The benchmark BSE index fell 1.19 percent, or 252.15 points, to end at 20,888.33, erasing earlier gains of as much as 0.9 percent.
The broader NSE index lost 1.28 percent, or 80.50 points, to end at 6,221.15, posting its lowest close since Dec 19. Both indexes marked their biggest single day fall since Nov 21.
ICICI Bank Ltd fell 2 percent after earlier rising as much as 1.9 percent, while Axis Bank Ltd lost 1.5 percent.
Among non-banking lenders, IDFC Ltd lost 4.7 percent, erasing earlier gains of 1.5 percent, while Housing Development Finance Corp Ltd ended 0.3 percent lower.
In other blue chip shares, Larsen and Toubro Ltd fell 3 percent, while ITC Ltd ended lower 2.3 percent.
However among stocks that gained, midcap state-owned banks, including Corporation Bank Ltd, rose as dealers cited attractive valuations compared with larger private sector rivals. Corporation Bank and Indian Bank Ltd ended up 0.5 percent each.
FACTORS TO WATCH
* Dollar near 5-year high vs yen, eyes on U.S. data
* Brent rises above $111, but weak China data drags
* Asia shares turn mixed as China disappoints
* Foreign institutional investor flows