In another bizarre twist to India's insider-dealing scandal, Indian police said on Friday that they had arrested the biggest speculator in the market - known as 'Bombay Bull'.

Broker Ketan Parekh was notorious in market circles for wielding a heavy influence over the prices of volatile technology and media stocks.

Indian shares fell sharply on Friday, following news that such a key player was about to be arrested.

Stocks on the Bombay Stock Exchange plunged almost 4% as rumours of the worsening crisis caused panic selling.

The benchmark BSE 30 index closed down 147 points at 3,604.

One analyst was predicting that the index could fall another 5-8% next week and then stabilise at that level.

Directors arrested

Earlier it emerged that eight directors of the Calcutta Stock Exchange (CSE) have resigned as the crisis deepened.

The CSE found that ten of its members had defaulted and suspended them over their failure to meet payment obligations.

Recent falls in stocks on all the Indian exchanges have meant that some brokers have made heavy losses.

"We feel that the crisis at the exchange is over and do not want to obstruct the Securities and Exchange Board of India's next moves," CSE president Kamal Parekh said after he resigned.

Before suspending the members, they were asked to explain why they had failed to pay the settlements but only six of them replied.

Along with the president of the exchange, Kamal Parekh, the vice-president K.K. Daga and six directors handed in their notice, a CSE statement said.

The CSE has an 18-member board of which nine are elected by exchange members.

Bad call

The Calcutta Stock Exchange has been under a cloud since three brokers defaulted on payment obligations, forcing the exchange to draw 380m (�6m, $9m) rupees from an emergency fund.

The defaults followed a slump in Indian shares over allegations of insider trading and price manipulation at the Bombay exchange, India's biggest stock market.

The three brokers owe the exchange 450m rupees and the settlement guarantee fund has covered 130m rupees of the shortfall.

Bombay blues

Earlier this month, the Securities and Exchange Board of India suspended all the broker member directors of the governing board of the Bombay exchange.

Some brokers have been accused of insider dealing, trying to profit from priveleged knowledge of company dealings - which is a criminal offence.