Anand Tandon, director of equities at Brics Securities, said that the markets are likely to remain volatile ahead of the budget.
"Some part of the expectations is already built in and the market would move in a tight trading range before the budget. The manuoeuvability room for policymakers is restricted," he said.
Power and banking stocks were also under pressure. The BSE power index fell 2.3 per cent and the BSE bankex dropped 1.9 per cent.
In the Sensex pack, Tata Motors was the biggest loser. The stock shed 5.3 per cent. JP Associates, DLF and Sterlite were the other main losers in the group.
Oil prices jumped above $73 a barrel Tuesday in Asia as a weakening US dollar and attacks on oil installations in Nigeria helped push prices to eight-month highs.
Benchmark crude for August delivery was up $1.06 to $72.55 a barrel in electronic trading on the New York Mercantile Exchange after trading as high as $73.38. On Monday, it gained $2.33 to settle at $71.49.
Oil has surged from below $35 in March in part on investor concern that massive US fiscal stimulus spending will eventually spark high inflation. Investors often buy commodities such as crude as a hedge against a weakening dollar and inflation. Led by commodity stocks, Asian markets were mostly higher in recent trade.