Sensex falls 371 points, snaps six-session rally

"Market had forgotten many negatives while it was rallying. The worries are now coming back," said Jagannadham Thunuguntla, head of research at SMC Global Securities in New Delhi.

The main 30-share BSE index ended down 370.68 points, or 2.15 percent, - its biggest percentage fall since December 16 - at 16,863.30 points, with 25 of its components falling. It touched its highest closing level in 11 weeks on Friday.

"The catch-up is now over. We have become the best performing market in the world from the worst last year. Now we will move in tandem with the global markets," said Arun Kejriwal, strategist at research firm KRIS.

The benchmark had added 11.5 percent till Friday in January, to become one of the best performing major markets in the world this year. It had shed nearly a quarter in 2011, making it one of the worst performers in the world.

Foreign funds have pumped in about $1.8 billion into Indian shares so far this month, compared to net outflows of about $500 million last year.

"There was no fundamental reason to rally in January. But liquidity doesn't sit and bother about fundamentals," said Sudhakar Shanbhag, chief investment officer at Kotak Mahindra Old Mutual Life Insurance Ltd.

Efforts by central banks in Europe and the United States to increase liquidity in the financial system are helping low-cost money flow into commodities and emerging market equities like India, he said.

The concerns around domestic economic growth, policy initiatives, corporate earnings and inflation still remain, Shanbhag said.

State-run BHEL's shares closed down 10.76 percent - their biggest percentage fall since May 2004 - at 244.15 rupees after the company missed quarterly profit estimates and reported a 9 percent decline in its order book from end-September.

Macquarie cut its target price for BHEL to 233 rupees from 314 earlier, saying a "nightmare scenario" was playing out for the company. "We are now faced with worst case scenario on order inflows with 35 percent decline in FY12," Macquarie said.

BHEL's performance pulled down shares of rival Larsen & Toubro Ltd, which fell 5.52 percent.

Energy major Reliance Industries, which contributes about a tenth to the benchmark index, fell 3.1 percent to 794.75 rupees, ahead of an up to $2.1 billion buyback that opens on February 1.

Lenders ICICI Bank and HDFC Bank fell 4 and 1 percent, respectively, while top lender State Bank of India fell 2.7 percent.

Top mobile operator Bharti Airtel ended 4.7 percent down at 357.15 rupees, while vehicle makers Tata Motors and Maruti Suzuki fell 2.48 percent and 1.43 percent, respectively.

The 50-share NSE index fell 2.26 percent to 5,087.30 points. There were about 3 losers for every gainer in the broader market and about 757 million shares changed hands.

By 0914 GMT, the FTSEurofirst 300 index of top European shares was down 1 percent as worries about debt swap talks between Greece and its private creditors continued to weigh on investor sentiment before an European Union summit about the region's debt crisis.

STOCKS THAT MOVED

Havells India rose 3.44 percent to 443.70 rupees after reporting higher-than-expected profit for its fiscal third quarter.

Turnkey power projects contractor Jyoti Structures fell 7.6 percent to 46.25 rupees after the company posted slower-than-expected sales growth in October-December.

Dairy products producer Hatsun Agro Product Ltd rose as much as 12 percent after the company said its board will meet on February 13 to consider a bonus share issue and a special interim dividend. It closed up 7.6 percent at 134.50 rupees.

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