Caution took over investors as the market frittered away all the early gains as the benchmark Sensex started moving down, showing signs of heavy volatility.
Selling pressure distinctly came to the fore in telecom, auto, capital goods and technology sectors.
What contained the damage was indication that US economy is regaining momentum after upbeat retail sales data. But lingering worries about a US rate hike on horizon made investors skittish, which could affect liquidity flow for emerging markets.
The 30-share index resumed higher at 27,776.14 and hovered between 27,803.21 and 27,663.82 before quoting at 27,551.59 at 1206 hours, down 122.01 points, or 0.44 per cent, from its last close.
Foreign portfolio investors (FPIs) sold shares worth a net Rs 946.42 crore on yesterday, showed provisional data.
Overseas, Asian markets witnessed a mixed trend. US stocks registered small gains last Friday as investors digested the commentary from key Federal Reserve officials.