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rural heartland would take a hit.

Farms in India depend on the June-September annual rains for irrigation and patchy showers could seriously squeeze rural incomes, reduce demand for everything from motorbikes to soaps and worsen a slowing economy.

The market had risen as much as 1.1 per cent in morning trade on short-covering on the last day of monthly derivatives contracts, but traders said there was not much fresh buying after the expiry.

"There are a lot of factors affecting the market. Global stocks have been weak in the past few weeks, and on top of that we have our own problems such as the monsoon," Apurva Shah, head of research at brokerage Prabhudas Lilladher, said.

Profitability at automakers and consumer-goods makers, who are exposed to the rural sector, could be hit as poor rains lower farm output, raise food prices and dent rural demand.

The government said on Wednesday India's monsoon rains, a lifeline to its trillion-dollar economy, are expected to be below normal for the first time in four years, a blow to a slowing economy.

Top utility vehicle maker Mahindra & Mahindra fell 2.9 per cent to Rs 702.65, while leading vehicle maker Tata Motors dropped 5.4 per cent to Rs 337.60. Maruti Suzuki slipped 3.1 per cent to Rs 1,026.90.

Consumer-goods giant Hindustan Unilever shed 1.3 per cent to Rs 259.25, while diversified cigarette maker ITC Ltd dropped 2.3 per cent to Rs 194.10.

Oil and Natural Gas Corp fell 2.5 per cent to Rs 1,025.20 a day after the state-run explorer reported a surprise 16 per cent drop in March-quarter profit.

The 30-share BSE index ended down 0.53 per cent, or 77.11 points, at 14,345.62, with 20 stocks declining, after rising to as much as 14,578.46.

The benchmark had fallen almost 7 per cent over the past two weeks on profit-taking after a 14-week rally that saw it jump 83 per cent.

Expectations are running high the government's annual budget on July 6 will relax foreign investment rules, hike spending on infrastructure and kick-off stake sales in state-run firms to reduce a rising fiscal deficit and boost slowing economic growth.

But investors are wary.

"There is underlying weakness in the market. The monsoon is a definite concern, and it is out of our control," Ambareesh Baliga, vice-president at Karvy Stock Broking, said.

"Investors are also toning down their expectations from the upcoming budget."

The main stock index could decline by 3 to 6 per cent from current levels by the end of 2009 as expensive valuations and higher commodity costs temper investor optimism, a senior strategist at Citigroup said on Wednesday.

Energy giant Reliance Industries, which has the most weight in the main index, slid 2 per cent to Rs 1,959.50.

But private-sector lender ICICI Bank climbed 1.4 per cent to Rs 698.70, while top mortgage lender Housing Development Finance Corp advanced 3 per cent to Rs 2,378.10.

In the broader section, gainers led losers 1,426 to 1,220 on relatively above-average volume of 426.4 million shares.

The 50-share NSE index fell 1.2 per cent to 4,241.85.

More than half its components saw large block deals as funds aligned with the index rejigged their holding ahead of a switch to a free-float market capitalisation methodology based on the public shareholding of the firms to calculate the weight of index stocks.