The Sensex and Nifty ended lower as world stocks nudged lower, bond yields fell and a hush settled on the dollar, with investors certain the Federal Reserve will lift interest rates for the first time in a year on Wednesday but less so about what it may do in 2017.

The 30-share BSE index Sensex ended lower by 94.98 points or 0.36 per cent at 26,602.84 and the 50-share NSE index Nifty closed down by 39.35 points or 0.48 per cent at 8,182.45.

Among BSE sectoral indices, metal index was down 1.7 per cent, PSU 1.65 per cent, capital goods 1.00 per cent and FMCG 0.82 per cent. On the other hand, IT index was up 0.63 per cent, realty 0.5 per cent and TECk 0.36 per cent.

Buying acvitity was witnessed in select counters on positive economic data as WPI-based inflation for November 2016 came in at a five-month low of 3.15 per cent against 3.39 per cent in the previous month.

Also, retail inflation fell to a two-year low of 3.63 per cent in November following the Centre’s demonetisation drive that led to lower consumer spending on various food items including vegetables.

This is the lowest level since November 2014 when the retail inflation was recorded at 3.23 per cent.

Top five Sensex gainers were Axis Bank (+3.23%), Reliance (+1.93%), Infosys (+0.91%), M&M (+0.51%) and Tata Motors (+0.48%), while the major losers were Coal India (-4.42%), ONGC (-2.02%), Power Grid (-1.78%), Cipla (-1.59%) and ICICI Bank (-1.55%).

Coal India was the top loser on the NSE index after the company reported a slump in its consolidated profit for the September quarter.

Financial stocks fell on caution ahead of Fed decision with Housing Development Finance Corp sliding as much as 1.5 per cent.

Asian markets remained cautious ahead of the US Fed's decision with investors pricing in a quarter percentage point rate hike with two more to follow next year.

Any hint that the Fed may move more aggressively would likely send the dollar higher and jolt emerging markets.

Investors are also worried that volatile global markets could prevent the Reserve Bank of India from cutting rates next year, even after data late on Tuesday showed consumer inflation cooled to a two-year low of 3.63 per cent in November.

“The inflation numbers and the Fed rate decision, among others, are factors that the RBI looks at for deciding on its monetary policy,” said Siddhartha Khemka, Vice President-Research at Centrum Wealth Management Ltd.

“The possible FII outflow back to US following a Fed rate hike would impact the market,” he said.

Sectors with high weightage in the index could be affected more and financials is one such sector, Khemka added.

A report by SMC Global said: "Asian markets are mostly positive tracking the record highs in US markets. US markets scaled fresh record highs led by a surge in technology and energy stocks ahead of the US Federal Reserve's expected interest rate hike and potential changes in its inflation and growth outlook. US import prices fell by 0.3 per cent in November after climbing by a revised 0.4 per cent in October. Import prices were expected to drop by 0.4 per cent compared to the 0.5 per cent increase originally reported for the previous month."

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