The rising crude oil prices, which touched a new high of $145 a barrel on Thursday, washed away almost a third of Wednesday?s gains from the equity indices, and took the rupee close to a 15-month low. Across-the-board selling ahead of fresh inflation data due on Friday, against the backdrop of political uncertainty in New Delhi over the Indo-US nuclear deal, shaved off more than 4% from the leading measures of the Indian bourses on Thursday.

The 30-share Sensex of the Bombay Stock Exchange (BSE) lost 570 points, or 4.18%, and headed for a seventh weekly decline. Bond prices also crashed on inflation woes.

Overseas investors sold a net Rs 350 crore of Indian equities on Wednesday, increasing their net outflow this year from stocks to $6.41 billion, according to the Securities & Exchange Board of India (Sebi). Analysts expect outflows to increase and the rupee to drop to over 44 a dollar. The local currency on Thursday ended at 43.30/31 against the dollar, 0.3% weaker.

The Sensex traded below the 13k level in the noon session on Thursday and closed at 13,094.11 points. The broader S&P CNX Nifty of the National Stock Exchange (NSE) shed 167.60 points, or 4.09%, before ending below the crucial 4,000-mark at 3,925.75 points.

Bond prices also fell, pushing the benchmark 10-year yield to the highest closing level since 2001 over concerns accelerating inflation will deter investors from buying debt and spur the central bank to increase interest rates again. The yield on the 10-year benchmark paper ended at 8.8081% on Thursday, as against 8.7800% the previous day.

Analysts believe that the markets will remain volatile with a downward bias as long as crude prices and inflation continue to head north. The Sensex has lost 35.5% this year, following a 47% advance in 2007.

Anil Advani, who heads research at SBICap Securities, said, ?I think markets will show some signs of stabilisation only when we see some softening in the crude prices in coming days.?

The Sensex opened the day at 13,530.68, and touched a high of 13,530.68 and a low of 12,934.92 during the day. All sectoral indices on BSE ended in negative terrain, with the major losers being real estate, metal, power and bank stocks.

Arpit Agarwal, head of research at broking firm Arihant Capital Markets, said, ?I think today?s sell-off has already factored in higher inflation numbers that will be declared on Friday. Today?s action also takes into account a possible action from the Reserve Bank of India to contain inflation ahead of its July 29 meeting.?

With an exception of two public sector behemoths?State Bank of India and ONGC?the other 28 stocks in the Sensex ended the day in the red. The market breadth turned negative with only 750 stocks advancing and 1,876 declining and 59 remaining unchanged.

The provisional data released by the stock exchanges indicated that foreign institutional investors continued to remain net sellers at Rs 606.92 crore and domestic institutional investors were net buyers at Rs 526.10 crore.