The Sensex touched a low of 18,679 towards the end of the day, and finally ended at 18,721 - down 137 points.
Nifty ended down 44 points at 5,616.
Asian markets were in red on a higher-than-expected unemployment data from the US. Hang Seng slipped 1.6% to 22,347. Nikkei was down 0.7% at 10,069.
Straits Times, Seoul Composite and Taiwan Weighted was down around 1% each.
The earnings season has begun with HDFC announcing its quarterly numbers on Friday.
The housing mortgage lender reported a 22% y-o-y growth in net profit to Rs 844.53 crore for the April-June quarter of the current fiscal.
The stock was down around 0.6% at Rs 708.
The next result to watch out for is IT bellweather, Infosys, which is set to come out on Tuesday. The stock declined 2% at Rs 2,919 - the biggest dragger in the benchmark. other IT stocks - TCS and Wipro dropped 1-2% each.
In other news, the government has set a target of merchandise exports of $300 billion in the fiscal year through March 2012, after shipments topped the government's estimate and rose to a record high of $245.9 billion last year.
Finance Minister Pranab Mukherjee on Friday, 8 July 2011, said the government's revenue collections so far have been healthy and he doesn't expect any slippage in the fiscal year target of Rs 7.9
'Why should the Prime Minister be immune?'
ITC bets on beverages, dairy to top FMCG pack
FIIs have sold Rs 3,000-crore shares in 2011
'Kingfisher will attract attention on listing'
Bulls back to fore, Sensex surges 434 pts