Nifty slumps 1.6 percent, posts sharpest one-day fall in 2-1/2 months

By Indulal PM

MUMBAI (Reuters) - The Nifty posted its biggest single-day fall in about two-and-a-half months as blue-chips tracked weaker global shares on disappointment over European manufacturing data and concerns about an unemployment measure in a survey in China.

Caution also prevails ahead of the expiry of the monthly derivatives contracts on Thursday which traditionally sparks volatility in markets.

Investors were also mitigating risk after surveys showed French business activity contracted in September and Germany's manufacturing sector expanded at its slowest pace since June 2013.

Meanwhile, a private survey showed China factory activity edged up in September, but also showed unemployment falling to a 5-1/2-year low.

"The fall has been largely because of positional unwinding ahead of derivatives contract expiry. Also, investors were churning portfolios," said Deven Choksey, managing director at KR Choksey Securities.

"However, outlook remains positive and markets are consolidating. We will see further uptick after Nifty crosses 8,250," said Choksey.

The benchmark BSE Sensex closed 1.58 percent lower at 26,775.69, while the broader Nifty also fell 1.58 percent to 8,017.55.

Blue chips led the falls. Shares in ICICI Bank closed 2.6 percent lower after gaining 3.5 percent in the last four sessions.

Shares in Reliance Industries closed down 2.6 percent, while Oil and Natural Gas Corp , which gained 3.7 percent on Monday, fell 2.8 percent.

Metal stocks also declined, with Tata Steel closing down 3.1 percent adding to its 1.97 percent fall on Monday, on concerns about weak Chinese demand.

Steel futures in China continued their long slump on Tuesday, with no signs that steel or iron ore demand will pick up in a chronically over supplied market.

Shares in DLF Ltd slumped 6.7 percent after BNP Paribas downgraded the stock to "reduce" from "hold", citing "limited upside potential" for shares and "no major potential catalysts in the near-term." [ID:nL3N0RO1HR]

Shares in Mahindra and Mahindra Ltd fell 1.8 percent after Credit Suisse downgraded the stock to "neutral" from "outperform," saying valuations were no longer "attractive."

(Reporting by Indulal PM; Editing by Anand Basu)