Sensex declined 88 points to close at 28,064.61, while Nifty fell 29.60 points or 0.34% to close at 8,642.55.

Market benchmark Sensex declined 88 points to close at 28,064.61 on Tuesday as investors cut down their bets after industrial output growth slowed down to 2.1% in June and inflation hits two-year high. Lower international advices following a sharp rally in the yen and disappointing Japanese second-quarter GDP figures also hit investor sentiment.

An official data on Friday showed industrial output grew by 2.1% in June, although down from 4.2% a year ago, on account of poor show by manufacturing and heavy contraction in capital goods. Besides, retail inflation shot up to nearly two-year high of 6.07 % in July, well above RBI's comfortable level, on surge in prices of food items as demand for sugar, oil & fats and spices rose ahead of the festival season. WPI inflation hit a 23-month high of 3.55 % in July on Tuesday.

Markets have begun to refocus on macros, and the first of those have disappointed. Both the CPI and WPI have diminished chances of a rate cut in October," said Anand James Chief Market Strategist, Geojit BNP Paribas Financial Services. The BSE Sensex resumed higher at 28,190.04 and hovered in a range of 28,199.10 to 27,942.65 before closing at 28,064.61, showing a fall of 87.79 points or 0.31 %. The gauge had gained 377.52 in the previous two sessions.

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The 50-issue Nifty fell 29.60 points or 0.34% to close at 8,642.55. Intra-day, it hovered between 8,682.35 and 8,600.45. Shares of Unitech slumped 16.91% after the real estate firm expressed inability before the Supreme Court to refund money to the home buyers over its two delayed projects in Noida and Gurgaon.

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Stock of Infosys slipped 1.16% to Rs 1,050.95 after the tech major announced it will ramp-down about 3,000 jobs, following Royal Bank of Scotland's decision to cancel a project to set up a separate bank in the UK. Overseas, Asian stocks ended lower as the price of crude oil took a breather from a three-day rally. Japanese stocks fell by 1.62% as the yen strengthened against the dollar.

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