Humidity is expected to range between 10 per cent and 75 per cent today
The benchmark 30-share Sensex index fell 368.94 points to 14,724.18, the third straight day of losses.
"A sell-off came as investors chose not to build up fresh positions ahead of a long weekend," said Manoj Kakaiya, dealer at brokerage ULJK Securities.
India's inflation is running at 12.01 percent, considerably higher than the central bank's end-of-year target of seven percent.
New inflation data was slated to be announced later on Thursday.
The stock markets were due to be closed for trading Friday because of Independence Day celebrations.
In Thursday's trade, losers led gainers 1,849 to 811 on volume of 48.51 billion rupees (1.13 billion dollars).
The rupee fell against the dollar to 42.82 from 42.67 and against the euro to 63.83 from 63.71.
Interest-rate sensitive property and banking stocks fell amid fears of more monetary tightening to fight inflation now at 13-year highs.
India's top property firm DLF fell 47.5 rupees or 8.66 percent to 501.1 while the largest bank State Bank of India slid 97.05 rupees or 6.24 percent to 1,458.2.
India's largest private sector firm, Reliance Industries, fell 65.6 rupees or 2.8 percent to 2,275.3.
Humidity is expected to range between 10 per cent and 75 per cent today
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