Bonds rose to over 8-month highs as rate hike fears faded after the central bank promised to keep buying government bonds to infuse liquidity, and also mentioned the probability of changing its rate stance if inflation risks do not mature.
The 10-year benchmark bond yield fell to as low as 7.38 per cent, its lowest since April 11 and compared with its previous close of 7.44 per cent.
The rupee opened weak at 70.72 and then further depreciated by 54 paise and hit the 71 per dollar mark due to strengthening of American currency and a weak equity market.
Forex traders said the dollar's strength against other overseas currencies and foreign fund outflows weighed on the local unit.
On a net basis, foreign portfolio investors (FPIs) sold shares worth Rs 357.82 crore on Wednesday, and domestic institutional investors (DIIs) were net sellers to the tune of Rs 791.59 crore.
The Sensex was trading lower by 356.93 points or 0.99 per cent at 35,527.48 and the Nifty down 125.4 points or 1.16 per cent at 10,657.50.
Oil prices extended losses ahead of the meeting of OPEC and non-OPEC production companies. Brent crude, the international benchmark, was trading 0.83 per cent lower at $61.05 per barrel.
Most Asian currencies fell on concerns over slowing global growth and a lack of resolution in the China-US trade war.
The Reserve Bank of India had kept interest rates unchanged on Wednesday, in a decision that was widely expected as inflation has eased significantly, while it took steps to persuade banks to lend more to support an economy that has lost some momentum.