The Sensex, which had lost 71 points in the previous session, fell further by 83.85 points, or 0.39 per cent to 21,171.41, after touching the day's low of 21,069.45.
Overall, 19 constituents including Tata Motors, L&T and SBI of the 30-share index fell. NTPC and HDFC were among the 10 gainers. Cipla was unchanged.
Sentiment dampened after export growth decelerated to 5.9 per cent YoY in November, following four consecutive months of double-digit growth. Indecision was also seen ahead of the November retail inflation and October IIP, said traders.
Brokers said the market was in an 'overbought' position in past few sessions and that lured investors to book profits.
The BSE Sensex had climbed to an all-time high of 21,484.74 intra-day on December 9, after a good showing by main opposition BJP party in Assembly elections in four states.
Investors also reduced their holdings before policy meetings by the RBI and the U.S. Fed Open Market Committee next week, brokers added.
The broad-based National Stock Exchange index Nifty lost 24.95 points, or 0.39 per cent, to end at 6,307.90. Also, SX40 index of MCX Stock Exchange fell 46.69 points to 12,569.51.
Sectorally, the BSE Capital goods sector index suffered the most by losing 1.39 per cent, followed by auto index (down 1.05 per cent), oil and gas index (0.86 per cent) and metal index (0.63 per cent). FMCG index was the lone gainer.
A weakening trend in the Asian region and lower opening in Europe further influenced the domestic market.
Yesterday, reports said U.S. employers advertised the most job openings in more than five years in October, and the number of people quitting also reached a five-year high. This aided bets that a US budget agreement will boost prospects for tapering the Federal Reserve's stimulus programme.
Budget negotiators have unveiled a pact to ease automatic spending cuts by around USD 60 billion over two years and cut the US deficit by around USD 23 billion.
BSE Sensex drop for second day from record high; focus on fundamentals
(Reuters) - BSE Sensex fell on Wednesday, continuing to retreat from record highs at the start of the week, as investors took profits in blue chips such as Tata Motors ahead of inflation data.
The report on consumer prices on Thursday will be followed by the wholesale price inflation on Monday, which will help set expectations ahead of the Reserve Bank of India's policy review on Dec 18.
Consumer prices were forecast to have risen an annualised 10 percent annually last month, a Reuters poll showed, barely changed from the 10.09 percent clocked in October.
Tackling inflation will be a key priority, RBI Governor Raghuram Rajan said on Wednesday, raising expectations that the central bank could raise interest rates for a third time in four months if prices remained high.
"The only logical recourse in the market would be to consolidate at these levels as the focus shifts back to fundamentals which are not great at the moment,' said P. Phani Sekhar, fund manager at Angel Broking.
The benchmark BSE index fell 0.39 percent, or 83.85 points, to end at 21,171.41, retreating further from a record high of 21,483.74 hit on Monday.
The broader NSE index fell or 0.39 percent, or 24.95 points, to end at 6,307.90, lower than its record high of 6,415.25, also on Monday.
Recent outperforming blue chips led the decliners for a second day. Tata Motors Ltd fell 3.3 percent, while DLF Ltd ended 2.1 percent lower.
Among state-owned banks, State Bank of India Ltd ended lower 2.5 percent, while Bank of Baroda Ltd fell 2.4 percent.
Capital good makers fell on caution ahead of industrial output data due out on Thursday.
Larsen and Toubro Ltd ended lower 1.8 percent, while Bharat Heavy Electricals Ltd fell 2.1 percent.
However, NTPC Ltd gained 2.4 percent after executives at the utility assured investors it would hold consultations with regulators after draft guidelines on electricity were seen hurting returns in the sector and sent its shares down 11.4 percent on Tuesday.
United Breweries Ltd gained 2 percent after the Netherlands' Heineken NV became the largest shareholder in the company. Its stake inched past that of liquor baron Vijay Mallya.
Coal India Ltd ended 1.1 percent higher after earlier falling as much as 3.4 percent after the company said it will take appropriate legal action on the competition regulator's fine of 17.7 billion rupees.