Trading reaction became pessimistic and the Bombay Stock Exchange benchmark Sensex declined 181.83 points to 18,969.45 on the back of heavy selling pressure witnessed in pivotals headed by banking after the central bank raised key policy rates to a 2-year peak and revised upwards its inflation estimation.

In addition, investors unwound their pending locations in the derivatives sections prior to the current month settlement expiry, and a deteriorating worldwide trend.

Belling the day on a higher note, the gauge surged to 19,340.99 before closing with losses as the central bank lifted up the key lending and borrowing rates by 0.25 BPS and predicted inflation at 7% by March 31, more than the previous forecast of 5.5%.

In the same way, the broad-based Nifty shed 55.85 points to 5,687.40 as the market stayed under pressure accompanying the seventh time increase in interest rates consecutively within a year.

Blocking up Japan's Nikkei, Asian bourses ended on a lower note and a weak opening in Europe further broke trading response.

The banking sector index lost the most by shedding 2.34% to 12,349.75 with the majority of the big lenders including SBI, ICICI Bank and HDFC banks ended with losses in spite of their better performance during the third quarter.

FMCG section remained the second worst performer shedding 1.67% to 3,487.72 as HUL dipped 5.45%, its most outrageous decline since July 2009 after its third quarter numbers dropped as higher input costs cut down operating margins.

With the general deteriorating trend, Reliance Industries declined Rs 12.50 to Rs 958.55 and second-heavy Infosys Technologies lost Rs 24.10 to Rs 3,254.10.

An increase in scrips of Consumer Durables, Capital Goods and Power Sector, softened the stock market from a major decline.

The market will remain closed today due to Republic Day.