The Sensex commenced higher at 20,172.45 on good buying support in rate sensitive shares but soon dipped to a low of 20,062.79 points.
Finally, it ended at 20,103.35, 0.18 point lower than its last close. It had spurted by 179.75 points or 0.90 per cent on Friday.
The Sensex failed to hold on to its gains on profit-booking ahead of the expiry of Futures and Options contract on coming Thursday.
However, the NSE 50-share Nifty edged up by 0.15 points to finish at 6,074.80.
"Volatility was high ahead of RBI monetary policy tomorrow.... Investors booked profit after strong gains, showing caution at higher levels. Market breadth was positive and volumes were much lower than the last day," said Nidhi Sarswat, Senor Research Analyst, Bonanza Portfolio Ltd.
Buying was prominent in realty, auto and banking sectors, Sarswat added.
BSE-Realty index rose by 1.84 per cent, BSE-Auto by 1.03 per cent and Bankex 0.68 per cent.
Shares of IT sectors too were in demand on good buying enquiries, while from refinery, Consumer Durable and Capital Goods declined on selling pressure.
Milan Bavishi of Inventure Growth & Securities said it was a see-saw session in markets ahead of the RBI┐s policy review tomorrow. "The street is expecting at least a 25 basis point cut in benchmark rates."
Of Sensex stocks, Tata Motors gained by 2.49 per cent, followed by Hero MotoCorp 1.84 per cent, Hindalco 1.72 per cent, Sterlite Industries 1.60 per cent, ICICI Bank 1.52 per cent.
The Reserve Bank of India (RBI) is schedueled to unveil third quarter monetary policy review tomorrow.
ONGC at 1.76 per cent was the biggest Sensex loser, followed by RIL at 1.56 per cent, HUL at 0.98 per cent, NTPC (0.97 per cent) and SBI (0.92 per cent).
Among the sectoral indices, the BSE-Oil&Gas fell by 1.14 per cent, BSE-CD 0.91 per cent, BSE-CG 0.65 per cent and BSE-Power 0.52 per cent while BSE-Realty rose by 1.84 per cent, BSE-Auto by 1.03 per cent and Bankex 0.68 per cent.
Market breadth remained positive as 1,213 stocks ended higher while 992 scrips finished lower. Total market turnover dropped further to Rs 2,009.83 crs from the last Friday's level of Rs 2,363.58 crore.
Analysts said expectations are already built for 0.25 per cent cut. So, a 0.25 per cent cut would make it a non-event and markets would continue to take cues from the quarterly results and FII flows.
"Apart from the results season, FII flows have been a key factor in the sustenance of markets at high levels, Bavishi said.
Meanwhile, foreign institutional investors (FIIs) bought shares worth a net Rs 586.87 crore on last Friday, as per provisional data from stock exchanges.
Most of the Asian stocks ended firm after a corporate-results-driven rally on Wall Street last Friday amid positive earnings outlook for Chinese firms.
Key indices in China, Hong Kong, Singapore and Taiwan hardened up to 2.41 per cent, while from Japan and South Korea fell by 0.36 pct to 0.94 per cent respectively
European stocks were trading narrowly mixed as indices in UK and Germany moved up by 0.02 per cent and 0.07 per cent, while France (CAC) was quoted lower by 0.07 per cent.
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