The 30-share index, which lost 704 points in yesterday's session, fell by 201 points to 16,159.20 in earlier trade today. The wide-based National Stock Exchange Nifty index also plunged by 59 points to 4,864.43.
Brokers attributed the widespread losses to a massive sell-off by funds, influenced by the weak trend in global markets after the US Federal Reserve warned of significant downside risks to the American economy.
Alarm about the risk of another economic down turn, after the US Federal Reserve's dire forecast at its two-day policy meeting which finished on Wednesday, pushed world stocks to 13-month lows as investors shed risky assets from portfolios and scurried to safer havens.
Meanwhile, S&P 500 futures stabilized and were trading up 0.7 percent, though Asian stock markets looked set to extend their weakness with South Korea's KOSPI off 3.3 percent in early trading.
With Japanese markets shut on Friday for a public holiday, traders said investors looking to raise cash might do so by selling shares in Hong Kong, putting further pressure on the Hang Seng which has already lost 8 percent this week and is at a 26-month low.
Earlier on Thursday the Dow Jones industrial average dropped 391.01 points, or 3.51 percent, to 10,733.83. The Standard & Poor's 500 Index lost 37.20 points, or 3.19 percent, to 1,129.56. The Nasdaq Composite Index slid 82.52 points, or 3.25 percent, to 2,455.67.I
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