The Sensex plunged by 284.53 points at 8,607.08, after touching the day's low of 8,563.52, the lowest since November 20, mostly on reports of the US economy contracting at the fastest pace in more than 27 years.

The 50-share National Stock Exchange index Nifty dropped by 89.05 points to 2,674.60, after touching a low of 2,659.55 during the day.

The trend-setter Reliance Industries, which approved the absorption of its unit Reliance Petroleum, led the decline with many stocks in the Mukesh and Anil Ambani group firms closing with losses.

Tata Consultancy Services led the decline among software makers as the US economy shrank at the fastest pace since 1982. More than 50 per cent of the country's software export revenue comes from the US.

RIL lost 3.15 per cent, Reliance Infra 9.12 per cent, RCom 6.50 per cent, Reliance Capital 6.97 per cent, Reliance Power 1.86 per cent and Reliance Petroleum 1.38 per cent.

In the 30-BSE index, barring Mahindra and Mahindra, all the 29 closed with small to large losses on widespread selling by foreign funds.

Banking sector stocks suffered the most on fears of a fall in lenders' revenue due to the economic crisis. The banking index fell by 4.86 per cent to 4,033.99 with heavyweights State Bank of India, ICICI Bank, HDFC Bank, Axis Bank and Canara Bank closed lower.

The metals index was the second-worst performer, falling 4.31 per cent to 4,488.82, after Sterlite Industries, the largest copper producer, fell 1.31 per cent to Rs 241.80. Tata Steel lost 7.54 per cent to Rs 159.35, Wellspun Gujarat 8.31 per cent to Rs 56.80 and JSW Steel 8.69 per cent to Rs 171.70.

The oil and gas index fell by 2.94 per cent to 5,885.97 after Reliance Industries, the most valuable company, fell after it offered one of its shares for every 16 held in Reliance Petroleum. It lost by Rs 39.90 to Rs 1,225.15 and RPL by Rs 1.05 to Rs 75.15.

The capital goods index fell 2.90 per cent to 5,726.86, the power index 2.83 per cent to 1,702.12, the PSU index 2.61 per cent to 4,855.11, the teck index 2.50 per cent to 1,693.01, and the FMCG index 2.48 per cent to 1,992.60.

The realty index fell 2.36 per cent to 1,379.84, the IT index 1.84 per cent to 2,057.58, the auto index one per cent to 2,655.72 and the healthcare index 0.41 per cent to 2,586.24.