The benchmark BSE Sensex tanked by over 538 points in one of its worst falls in over three months to 25,622.87, tracking global sell-off amid concerns over a slowdown in China and escalating tension in the Middle East.

In addition, India's manufacturing sector output shrinking to a 28-month low in December and fresh weakness in the rupee, accelerated selling activity. After falling over 190 points in opening trade due to heavy selling by funds and investors, the Sensex continued to slide as selling pressure gathered momentum and tumbled by 538.03 points or 2.06 per cent to 25,622.87 at 1345 hours. The 30-share index had gained about 201 points in the previous two sessions.

Major losers that dragged down the Sensex and Nifty were Tata Motors, Bharti Airtel, Adani Ports, HDFC Ltgd, BHEL, Lupin, ICICI Bank, SBI, RIL, Sun Pharma,Axis Bank, GAIL, Cipla, Hero MotoCorp, L&T;, Coal India, M&M;, Infosys and TCS. The National Stock Exchange index Nifty dipped below the psychological 7,800-mark by plunging 164.40 points or 2.06 per cent to 7,798.80. Brokers said sentiment was hit due to a global sell-off, driven by weak China data amid growing tensions in the Middle East.

China's factory activity shrank further in December, a private survey showed Monday, the 10th consecutive month of contraction with the world's number two economy set to post its weakest growth in a quarter of a century. Among other Asian markets, Shanghai Composite Index led the meltdown by ending 6.9 per cent lower.

Meanwhile, authorities in China suspended trading on the country's stock markets in the early afternoon after shares sank 7 per cent. Japan's Nikkei tumbled 3.06 per cent and Hong Kong's Hang Seng was down by 2.68 per cent. European markets were also down in their opening trade.