Key Indian stock index slides 3.87 percent

India's benchmark Sensex index plunged 506.43 points, or 3.87 percent, to close at 12,595.75, recovering slightly from midday losses of 4.2 percent.

"The nervousness and the impact of foreign investors pulling out have devastated confidence in the market," said Dhirendra Kumar, CEO of Value Research, an independent research house based in New Delhi. "The direction of money flow has been reversed and it is likely to remain like that for a while."

The nation's largest private bank, ICICI Bank Ltd., which has large foreign ownership, shed 12.11 percent despite a statement Monday reassuring investors that it has "zero exposure" to the U.S. subprime mess. The bank also said 98 percent of the non-India investments of its British subsidiary--which owned some Lehman Brothers bonds--are rated investment grade and above.

IT companies, which depend on the U.S. financial services industry for business, continued to suffer Monday, with Satyam Computer Services Ltd. sliding 9.13 percent and Infosys Technologies Ltd. falling 3.85 percent.

Despite progress toward a U.S.-India nuclear deal, which could be a boon for builders, infrastructure companies took a hit Monday. Larsen & Toubro lost 4.98 percent and Jaiprakash Associates Ltd., which also has exposure to India's troubled real estate sector, slid 11.85 percent.

The broader 50-share Nifty of the National Stock Exchange ended down 3.39 percent at 3,850.05 points.