Indian shares fell 1.7 percent on Friday, snapping a three-day winning streak, as profit booking emerged and a lack of clarity on new stimulus measures re-ignited concerns over the health of the U.S. economy and drove investors away from equities.

Disappointment grew after a speech by the U.S. Federal Reserve chief lacked details on plans to spur economic growth after a $447 billion jobs package plan by U.S. President Barack Obama.

The 30-share BSE index fell 1.74 percent, or 298.57 points, to 16,866.97, with 23 of its components declining. The index had gained nearly 3 percent in the past three trading sessions and on Thursday touched its highest close since Aug. 5.

Software stocks led the losses. The United States is one of the biggest markets for India's $76 billion information technology sector.

No.2 software services exporter Infosys fell 2.74 percent, while sector leader Tata Consultancy Services , ended 1.93 percent down.

The correction has a lot to do with profit booking that has come in during the day as investors chose to cash in on the gains made in the past few sessions. It did look like 5,100 levels will be a strong resistance, said Gajendra Nagpal, chief executive, Unicon Financial Intermediaries.

The weakness in the global markets has also definitely added to the negative sentiment.

A pick-up in foreign fund inflows over the past few sessions has underpinned India even as global markets have been dominated in recent weeks by fears of a U.S. relapse into recession and Europe's snowballing debt crisis.

The main index rose 0.27 percent this week, its second straight weekly gain after falling for five consecutive weeks.

Foreign funds bought just over $500 million of local stocks so far in September after selling $2.2 billion in the last month, according to data from the market regulator.

In the coming sessions the market is expected to move sideways and consolidate at around 5,050, Nagpal said.

The 50-share NSE index closed down 1.82 percent at 5,059.45. In the broader market, advancing stocks led declines 493 to 940 on a volume of 763 million shares.

Energy major Reliance Industries ended down 3.13 percent a day after India's federal auditor criticised the company and the government over development of the country's key natural gas field in the Krishna Godavari (KG) basin and called for revamping profit sharing arrangements from oil and gas blocks.

The auditor report could form the basis of any possible government action against Reliance in future, analysts said.

Reliance shares, which have the heaviest weight on the main index, are down 22 percent year to date, compared with a 18 percent fall in the benchmark index

Banking stocks also fell 2 to 4 percent on expectations the central bank may again raise rates next week.

The Reserve Bank of India remains bent on fighting domestic inflation despite weakening global conditions, officials with direct knowledge of policymaking said on Wednesday. It is scheduled to review policy next Friday.

HDFC Bank ended down 2.16 percent, while bigger rival ICICI Bank fell 2.41 percent. State Bank of India , the market leader, ended down 3.52 percent.

Aluminium producer Hindalco fell 5.72 percent after Morgan Stanley downgraded it to underweight from overweight and slashed its price target by nearly half.

Indian shares have been one of the world's worst performers this year, with the BSE index down 18 percent, as rising interest rates dent growth.

The MSCI's measure of Asian markets other than Japan fell 0.98 percent, while Japan's Nikkei ended down 0.63 percent.