The S&P BSE Sensex index fell as much as 260.05 points to 37,191.79 in early trade and the broader NSE Nifty benchmark moved to 10,965.50, down 80.6 points from the previous close.

According to analysts, investors remained edgy over concerns about developments in the China-US trade talks. However, a weak dollar against other major currencies overseas and softening crude prices restricted the rupee's fall, they added.

The dollar index, which gauges the greenback's strength against a basket of six currencies, fell 0.02 per cent to 98.19.

The 10-year government bond yield was up 1 basis point at 6.58 per cent in morning trade.

On Wednesday, the Cabinet gave nod to further liberalization of foreign direct investment (FDI) rules in four sectors. It approved FDI in digital media with its approval up to stake of 26 per cent, and allowed 100 per cent FDI in coal mining, associated infrastructure and sales of fuel.

The Cabinet also allowed 100 per cent foreign direct investment in contract manufacturing and eased sourcing norms for single-brand retailers.

FDI in contract manufacturing is intended to invite vendors who would want to rework their supply chains amid US-China trade uncertainty, IFA Global said in a note.

Foreign institutional investors (FIIs) remained net sellers in the capital markets, pulling out Rs 935.27 crore on Wednesday, as per provisional data.

Meanwhile, Brent crude futures, the global oil benchmark, declined 0.63 per cent to $60.11 per barrel.