Snapping its two-day rising trend, the Sensex slumped 192 points to finish below the 26,000-level due to profit-booking on the last day of November contracts and a fragile rupee, which hit record low against the dollar.
The rupee plunged to a fresh life-time low of 68.86 (intra-day) against the greenback, surpassing its previous low of 68.85 tested on August 28, 2013.
It ended the day at 68.73, down 17 paise, amid reports of the RBI selling dollars to stem the slide.
The Sensex resumed slightly lower at 26,049.14 and dropped further to 25,810.97 before ending at 25,860.17, showing a loss of 191.64 points or 0.74 per cent.
The index had gained 286.67 points or 1.11 per cent in the previous two days.
The NSE 50-share Nifty too dropped by 67.80 points or 0.84 per cent to close below the crucial 8,000-level to 7,965.50.
It had gained 104.20 points or 1.31 per cent in two days.
"Continued weakness in rupee against dollar, last hour of expiry square-off and the disruptions in Rajya Sabha debate over demonetisation dragged the market," said Vinod Nair, head of research, Geojit BNP Paribas Financial Services.
Participants offloaded their long bets in futures and options (F&O) segment instead of carrying them forward to the next series for December.
Foreign funds sold shares net Rs 1,023.12 crore on Wednesday, as per provisional figures issued by the stock exchanges.
Investors fear that upbeat US economic data has strengthened the case for a rate hike in the US, sparking capital outflows from emerging markets.
The US stock market will remain closed on Thursday, on account of Thanksgiving holiday.
Globally, Hong Kong's Hang Seng fell 0.30 per cent, while Japan's Nikkei rose 0.94 per cent. Shanghai Composite Index gained 0.02 per cent.
European shares too were trading mixed, with London's FTSE falling 0.14 per cent, while Paris CAC-30 gaining 0.15 per cent in early deals. Frankfurt's DAX was up 0.05 per cent.
