In its biggest fall in more than three months, the benchmark BSE Sensex today plunged by 537.55 points to crack below the 26,000-mark as worries over China's economic slowdown and geopolitical tensions in the Middle East combined to spook investors.

In addition, domestic manufacturing sector output shrinking to a 28-month low in December and fresh weakness in the rupee, further accelerated selling activity here.

Other Asian stocks, which opened today after a long break, were on the receiving end after a private survey showed Chinese factory data contracted for a fifth straight month.

Consequently, Shanghai index plunged by more than 7 per cent and trading was halted for the rest of the day.

A flare up in the Middle East after Saudi Arabia cut diplomatic ties with Iran following a row over Tehran's execution of a Shiite cleric also had its negative impact.

Moreover, global crude prices surged by 1.64 per cent to USD 37.89 per barrel while in the local market, rupee weakened by 45 paise to 66.59 (intra-day) against the dollar.

From the onset, the BSE 30-share Sensex remained in the negative zone and its settled 537.55 points or 2.05 per cent down at 25,623.35, its weakest closing since September 22.

The index had gained about 201 points in the previous two sessions.

The NSE Nifty fell below the 7,800-mark by losing 171.90 points or 2.16 per cent to 7,791.30 after hovering between 7,937.55 and 7,781.10. The index had last logged its biggest single-day fall of 185.45 points on September 1.

As many as 27 scrips out of the 30-share Sensex pack ended lower.

The broader markets too came under selling pressure with the mid-cap index falling 1.20 per and small-cap dropping 1.11 per cent.

Market heavyweights like Tata Motors suffered the most by tumbling 6.10 per cent followed by Bharti Airtel fell 4.10 per cent, Adani Ports (3.66 pc), BHEL (3.45 pc), HDFC (3.26 pc), SBI (2.94 pc), ICICI Bank (2.83 pc), L&T; (2.58 pc), Lupin (2.58 pc), GAIL (2.43 pc), Axis Bank (2.35 pc) and Sun Pharma (2.10 pc).

In other Asian markets, Japan's Nikkei tumbled 3.06 per cent and Hong Kong's Hang Seng lost 2.68 per cent. European markets were also down in their early trade.

Meanwhile, foreign investors bought shares worth Rs 228.11 crore on Friday as per provisional data.