Stocks have lost 16% in the last five sessions

The Indian rupee also tumbled for the seventh successive trading session to touch a new low of 48.43 against the dollar before recovering to close the day at 47.76.

The market indices on the Bombay Stock Exchange closed the day at 2680, about 5% down over last Friday's close.

Heavy selling has now driven Indian stocks down by a staggering 16% in the last five trading sessions.

Partial recovery

There was a partial recovery towards the close as high net-worth individuals and some domestic institutions stepped in to make modest purchases.

The worst hit were stocks of technology companies which have significant exposure in the US markets.

Foreign institutional investors, who had pumped more than $2bn into India this year, also began to sell heavily in the face of increasingly dangerous developments in the region.

That selling took its toll on the Indian rupee, which sunk to the new low of 48.43 against the dollar.

With Monday's fall the rupee has lost nearly 1% in the last few trading sessions and nearly 2% since the beginning of the year.

The rupee recovered somewhat to close at 47.76 against the greenback as the Reserve Bank of India and some other state run banks stepped in to sell dollars.

New lows

Analysts say recent developments could not have come at a worse time for the Indian economy, which was already suffering new lows in industrial and agriculture production.

In the short term, they say the Indian capital markets will take their cue from the US markets which reopened on Monday after a four-day closure.