Sensex resumed lower at 16,882.74 and dropped further to a low of 16,855.85. It later recovered to trade at 16,935.90 at 1040 hrs, a net loss of 96.66 points, or 0.57 per cent, from its last close.
The NSE 50-share Nifty also declined by 25.65 points, or 0.50 per cent, to 5,139.35.
Major losers were Hindalco (2.02 per cent), Tata Steel (2.02 per cent), HDFC (1.71 per cent), Sterlite Ind (1.66 per cent), Infosys (1.37 per cent) and Reliance Ind (1.35 per cent).
Cipla, on the other hand, firmed up by 1.74 per cent and Hero Motocorp rose by 1.03 per cent.
Asian markets declined in the early trade tracking sharp fall on the Wall Street overnight, as signs of a deepening global economic slowdown and Moody's downgrade 15 of the world's biggest banks, wiped away investor appetite for risk.
Key benchmark indices in Singapore, Japan, Taiwan, South Korea, Hong Kong and Indonesia were down in the range of 0.50 per cent to 2.19 per cent.
Foreign institutional investors (FIIs) sold shares worth a net Rs 257.29 crore yesterday as per provisional data from the stock exchanges.
