The Sensex ater touching a high of 15,694 in morning deals, erased gains and slipped to a low of 15,407.
The index finally ended down 89 points at 15,454 - posting its first annual loss in three years.
The Nifty ended down 22 points at 4,624.
For the calendar year 2011, the Sensex and Nifty ended down 24.6% each, compared to their previous close on December 31, 2010.
Foreign institutional investors sold shares worth Rs 1015.82 crore on Thursday as per provisional data from the stock exchanges.
Markets would be looking at corporate earnings which will start trickling in mid-January for direction going forward.
On the global front, Asian stocks ended their first losing year in three on Friday, having shed nearly a fifth of their value as Europe's debt crisis and financial turmoil took a toll on investors' risk appetite, driving them to safer assets such as the US dollar and gold.
Nikkei ended higher today but was down 17% for the year. European markets were flat. Dow Jones futures lost 29 points.
Most of the sectoral indices ended in the red with the BSE oil & gas index slipping 1.4% to 7,536 as Reliance erased morning gains.
BSE realty, metal and bankex shed around 1% each.
However, the PSU index continued to be firm and was up 1% at 6,365.
Reliance Industries slipped 2.8% to end below Rs 700 mark at Rs 693 - its lowest level since 23 March 2009, on concerns of falling gas output from KG-D6,
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