The bears are likely to tighten their grip on the market in the short term, following hardening of interest rates by the Reserve Bank amid negative cues from global markets, say analysts.

"The downward trend is likely to continue with the market testing new lows in the short-term. Overall, a broad rally with a negative bias is expected in the near future depending upon the global conditions," Ashika Stock Brokers' Research head Paras Bothra said.

The BSE benchmark index, Sensex, on Tuesday plunged over 550 points after the RBI hiked its key short-term lending rate and mandatory cash reserve requirement by 0.50 per cent and 0.25 per cent, respectively.

"More than expected hike in the cash reserve ratio (CRR) and repo rate, made the market give a knee-jerk reaction to the announcement. Though the bearishness is likely to continue, the F&O settlement on Thursday will give the market its next direction," SMC Global vice president Rajesh Jain said.

On the global front, the picture was not bright as well, with Japan's Nikkei 225 and Hong Kong's Hang Seng settling over two per cent in the red.

Marketmen said inflation control remains the top priority for the RBI and both CRR and repo rate hikes seek to curb credit growth and correct the short-term debt yield curve.

"However the GDP growth would suffer as a consequence of this monetary tightening," Reliance [Get Quote] Money CEO Sudip Bandyopadhyay said.

Barring the FMCG index, all sectoral indices, including banking, realty and auto indices, closed in the red after the announcement of the rate hike.