The 30-share index tanked 536.58 points or 1.46 per cent to settle at a two-month low of 36,305.02, logging its biggest single-day loss since February 6 when it declined by 561.22 points.

This is the weakest closing since July 11 when it settled at 36,265.93. The index dropped a total 1,785.62 points or more than 5 per cent in five sessions, wiping out Rs 8.48 lakh crore of market wealth.

Factors like crude oil prices hitting a four-year high, liquidity concerns after defaults by IL&FS, the rupee retreating a low of 72.73 against the US dollar beset investors.

The broad-based Nifty of the National Stock Exchange crashed below the 11,000 mark, declining by 168.20 points or 1.51 per cent to end at 10,974.90.

Liquidity concerns and reports that China has called off planned trade talks with the US weighed on the market sentiment, brokers said.

"This turmoil which was triggered last week by housing and NBFC's continued to trouble the market as panic spread. In spite of assuring statements by key government and institutional leaders, market was concerned about the near-term headwinds like quality and increased cost of funds along with tighter liquidity," Vinod Nair, Head of Research, Geojit Financial Services Ltd, said.

Brent crude prices hit a four-year high before trading up 2.34 per cent at USD 80.07 a barrel while WTI gained 1.81 per cent to USD 72.06 a barrel.

Of the 30 Sensex scrips, 24 declined with Mahindra & Mahindra emerging as the biggest loser. Mahindra and Mahindra fell by 6.46 per cent while Maruti and Bajaj Auto decline by 3 per cent and 1.7 per cent respectively.

Financial stocks led by HDFC also took a hit. HDFC dropped 6.22 per cent, IndusInd Bank by 4.94 per cent, ICICI Bank by 2.8 per cent, Kotak Bank by 2.6 per cent, HDFC Bank by 2.16 per cent, and SBI by 2.04 per cent.

Yes Bank fell by another 0.35 per cent, taking its total losses to more than 29 per cent after the RBI curtailed the term of its founding CEO Rana Kapoor.

Finance Minister Arun Jaitley said Monday that the government would take all measures to ensure adequate liquidity for non-banking financial companies (NBFCs) and mutual funds.

The Reserve Bank of India (RBI) and market regulator Sebi said Sunday that they were closely monitoring the developments in the financial sector and were ready to take "appropriate actions" to calm the jittery investors.

Other index losers included Bharti Airtel, Adani Ports, Tata Motors, Tata Steel, Asian Paint, Wipro, Hero MotoCorp, Sun Pharma, HUL, ITC Ltd, L&T and PowerGrid which fell up to 4.94 per cent.

Bucking the trend, IT stocks TCS and Infosys rose by 4.5 per cent and 1.5 per cent. Coal India rose by 2.1 per cent while Reliance gained 1.27 per cent.

In the broader market, the BSE small-cap index fell by 2.72 per cent while the mid-cap index shed 2.40 per cent.

Aviation stocks fall as brent crude price crosses USD 80 per barrel.

SpiceJet stock fell by 7.20 per cent to Rs 71.50 and InterGlobe Aviation stock was down 4.97 per cent to Rs 860.65.

Shares of Dewan Housing Finance Corporation rebounded nearly 11.79 per cent after the company stated that it had not defaulted on any bonds or repayment nor had there been any single instance of delay on any of its repayment of any liability.

The company's shares had tumbled 42.43 per cent in the previous session on Friday following massive selling over fears of a liquidity crisis.

In the sector terms, the BSE realty emerged worst performer by crashing 5.10 per cent, followed by auto 3.75 per cent, finance 3.46 per cent, telecom 3.30 per cent, healthcare 2.71 per cent, bankex 2.37 per cent, infrastructure 2.37 per cent and FMCG 2.09 per cent.

While IT and tech indices managed to end in the positive zone on weakening rupee.

Market breadth was negative as 2,155 scrips declined, 500 stocks advanced and 162 remained unchanged on BSE. As many as 467 securities hit their 52 week low today. Total turnover in the equity segment was Rs 3,772.30 crore.

In the Asian region, Hong Kong's Hang Seng fell 1.74 per cent, while financial markets in Japan and China are closed today for a public holiday.

Europe displayed a similar trend. Paris CAC 40 was down 0.19 per cent and Frankfurt's DAX edged lower by 0.42 per cent in early deals. London's FTSE too shed 0.19 per cent.