Ending the six-day winning streak, Sensex lost 42 points to 22,509 after an HSBC index on private sector activity showed a decline to 48.9 in March from 50.3 in February.
The benchmark index opened marginally higher at 22,598 against the previous close of 22,551. It touched a high of 22,621 and low of 22,369. Turnover on BSE was down Rs 2,967 crore against Rs 3,291 crore on Wednesday.
On the NSE, Nifty was down 16 points at 6,736.
Bank stocks dipped after the Reserve Bank of India clarified that the option for spreading the Mark to Market losses over the three quarters in Mach and no further extension would be allowed.
Shares of L&T were down by one per cent to Rs 1,290 on the possibility of the company writing off Rs 15,000-crore worth of slow-moving orders in the March quarter.
Some of the banks that closed in the red include ICICI Bank, IndusInd Bank, Yes Bank, Federal Bank, Kotak Mahindra Bank and HDFC Bank, Axis Bank, State Bank of India, Canara Bank, Union Bank of India, Bank of India and Bank of Baroda.
Punjab National Bank was down two per cent to Rs 742 after the bank that it has raised Rs 500-crore capital through tier-2 bonds on April 3.
IDBI Bank declined two per cent to Rs 64. The after market hours on Wednesday said that it has divested its entire equity holding of 18.95 per cent in Stock Holding Corporation of India to IFCI.
IDFC dipped two per cent to Rs 125, reversing intraday gains. RBI had granted "in-principle" approval to IDFC to offer banking facility.
Major gainers were Wockhardt (9%), Ranbaxy Lab (5%), Shriram City (5%), JP Power (5%), Thermax (4%) and Prestige Estates (4%).
Prominent losers include L&T Finance Holdings (-10%), IFCI (-9%), Godrej Cons (-6%), Oriental Bank (-5%) and Reliance Cap (-4%).