The 30-share barometer resumed better and immediately touched a high of 26,683.70 before falling back to settle 26,567.99, exhibiting a fall of 62.52 points or 0.23 per cent.
The broader 50-issue Nifty of the NSE also declined by 19.25 points or 0.24 per cent to 7,945.55.
Brokers said sentiment was hit by reports of slowdown in the manufacturing sector.
According to an HSBC survey, the headline HSBC India Purchasing Managers' Index (PMI) -- a composite gauge designed to give a single-figure snapshot of manufacturing business conditions -- dropped from 52.4 in August to 51.0 in September, the slowest pace of growth since December, 2013.
Selling was seen across-the-board as 10 out of 12 sectoral indices closed in the red and only IT and teck indices finished in the green.
Shares of IT companies firmed up after Infosys announced that it is extending its relationship with Oracle to enhance support for a range of innovative solutions and services on new technology platforms.
IT stocks also got a boost from rupee falling to almost seven-month low of 61.94 against the dollar.
Infosys was the second top gainer in the Sensex pack with a gain of 2.66 per cent. Wipro was biggest gainer 3.22 per cent. TCS rose by 1.37 per cent. The BSE-IT index was the top gainer among sectoral indices with a rise of 1.94 per cent, followed by BSE-Teck 1.36 per cent.
Major losers were Maruti 3.11 per cent, Tata Power 2.47 per cent, Tata Steel 2.31 per cent, Gail India 2.27 per cent, Reliance Ind 1.96 per cent, ITC 1.81 per cent, ONGC 1.58 per cent, HUL 1.44 per cent and Hindalco 1.05 per cent.
Gainers included Hero MotoCorp 1.24 per cent, Axis bank 0.81 per cent and Coal India 0.79 per cent.
The BSE and NSE will now open for trading on Tuesday as a series of holiday fall on October 2, 3 and 6 on account of Mahatma Gandhi Jayanthi, Dussehra and Bakri Id.
Among BSE sectoral indices, Oil&Gas fell by 1.55 per cent, Healthcare 1.26 per cent, realty 0.63 per cent and power 0.55 per cent.
The total market breadth remained negative as 1,636 stocks closed in the ed while 1,279 finished in the green. Total turnover fell to Rs 2,673.53 crore from Rs 3,820.54 crore.
The provisional data released by the stock exchanges showed that foreign portfolio investors (FPIs) sold shares worth a net Rs 485.93 crore yesterday.
Jignesh Chaudhary, Head of Research, Veracity Broking Services, said: "Local markets continued to trade range bound to slightly weak taking cues from the other Asian markets which traded low as political tension in Hong Kong created negative sentiments in the market.
"The Indian local market were trading stable compare to other Asian markets as last week global rating agency upgraded India's credit outlook to stable from negative."
Most Asian stocks ended lower after consumer confidence in the US unexpectedly declined and Hong Kong braced for bigger protests as Chinese holidays started.
Key benchmark indices in Japan, Singapore and South Korea fell by 0.39-1.41 per cent, while Taiwan's index firmed up by 0.26 per cent . Hong Kong market is closed today and tomorrow for holidays, while mainland China's markets are shut through October 7.
European stocks were trading mixed in their afternoon trade. Key indices in France and London fell by 0.24 per cent and 0.39 per cent while Germany's DAX was up by 0.15 per cent.