The Sensex, which had lost 793 points in the last five sessions, dropped further by 314.16 points to 16,461.71, reaching a level last seen on October 7.

The most-heaviest on the Sensex - Reliance Industries tumbled by 4.51 per cent as funds reduced their holding amid a reduction in fuel prices.

A weak trend in the Asian region and lower opening in Europe on concerns over the persisting euro-zone debt crisis worsened the sentiment.

The National Stock Exchange index Nifty dipped below the 5,000 mark, losing 95.70 points to 4,934.75.

Brokers said trading sentiment was low as quarterly earnings by many frontline companies have come under pressure on account of high interest rates and input costs.

Besides, they added, Fitch has warned that it might reduce its "stable" rating outlook for US banks with large capital markets businesses because of fears of contagion effect from   European crisis.

The oil and gas sector index suffered the most by losing 3.39 points to 8,298.32, followed by power index by 2.86 per cent to 1,988.09. The metal index fell by 2.48 per cent to 10,571.16 and realty index by 2.40 per cent to 1,633.10.

Of the 30 Sensex stocks, 27 closed with losses while three ended higher.