Shares were trading down on Thursday after an early rise met with resistance, a day after the BSE Sensex had climbed to its highest close in more than three weeks.
Analysts said technical factors halted the rise after a key index failed to break through a barrier and the put-call ratio discouraged building long positions.
Financial stocks bucked the trend and rose on hopes the government will take measures to bolster economic growth and help banks tide over a cash crunch.
The main 30-share BSE index was down 0.13 percent at 16,935.64 points by 11:46 a.m. (0616 GMT), a day after rallying 2.6 percent to its highest close in over three weeks. Twenty-two of its components fell.
The 50-share NSE index shed 0.16 percent to 5,091.05 points.
Kishor Ostwal, chairman and managing director at CNI Research, said after Nifty failed to get past resistance at 5,170 there was short selling.
Other technical factors also weighed.
If the put call ratio crosses 1.6, long positions are not advised. The ratio was hovering about 1.75 today, which in most of the times leads to profit booking and shares fall, an analyst said.
In the broader market, there were 1.2 gainers for every loser on moderate volume of 273.6 million shares.
Jindal Steel and Power and metals miner Hindalco led the losses, falling 2.9 and 2.2 percent respectively.
Top engineering firm Larsen & Toubro shed 1.5 percent.
Energy major Reliance Industries was down 0.1 percent, ahead of its quarterly earnings on Saturday.
Refining margins, a key indicator to the company's profitability, would be watched amid the strong global crude oil prices in July-September.
State Bank of India, the country's largest lender, rallied more than 3 percent on talk the government would pump in cash to shore up the capital of the state-run bank. Rival ICICI Bank rose more than 2 percent.
The government is serious about infusing money into the state-run banks, especially SBI. That has helped the rally to hold in the banking sector, K.K. Mital, head of portfolio management at Globe Capital said.
Mital said there was also speculation the RBI would pause on its tightening cycle after a possible another rate increase.
The Reserve Bank of India, which has raised rates a dozen times since mid-March 2010 to rein in stubbornly high inflation, is set to review policy on Oct. 25
Export-driven software services bellwether Infosys added another 1 percent, a day after it had jumped 7 percent following a less-than-expected cut in full-year sales forecast and strong quarterly earnings.
Bigger rival Tata Consultancy Services was up 0.8 percent, while No. 3 software firm Wipro roe 0.4 percent.
Shares in truck and car maker Tata Motors, which owns the UK-based marquee brands Jaguar and Land Rover, fell 0.l6 percent after initially rising more than 3 percent.
Asian shares rose on growing hopes that Europe was taking serious measures to curb the region's debt woes.
The MSCI's broadest index of Asia Pacific shares outside Japan was up 0.14 percent while Japan's Nikkei rose 0.98 percent.
STOCKS ON THE MOVE
* Pipavav Defence and Offshore Engineering fell 2 percent after the company said tax authorities visited the offices of founder SKIL Group in New Delhi and Mumbai on Wednesday.
* Development Credit Bank rose 9 percent after its September quarter net profit more than doubled.
* Rice makers Kohinoor foods, KRBL and LT Foods rose 3 to 6.4 percent on hopes local prices could climb on the back of floods in Thailand and reports of world's second-largest exporter Vietnam's potential default on deliveries.
TOP 3 BY VOLUME
* Tata Motors on 9.01 million shares
* Development Credit Bank on 9 million shares
* Ashok Leyland 8.99 million shares