The benchmark Sensex today tanked over 340 points to close below the crucial 17,000 points level on all-round selling sparked by a meltdown in Chinese stocks.

Brokers said a sudden bout selling emerged in the derivatives and cash segments on roll-over of positions a day ahead of the expiry of futures contract.

Attributing today's fall to negative global cues, brokerage company Hightech Securities Director Sanjeev Bhambri said the market is getting resistance above 17,000 mark and has a strong support at 16,600 level.

The market plunged in the afternoon trade as the Shanghai Composite tumbled by 3.62 per cent on panic selling sparked by fears about government actions against rising asset prices.

Reliance Industries, the heaviest on the Sensex, fell by nearly 3 per cent from its ex-bonus price against its last close of Rs 2,193.75. ICICI Bank dipped by 3.74 per cent, state-run banking giant SBI by 3.01 per cent. Steel major Tata Steel nosedived by 3.34 per cent after it posted a loss of Rs 2,707.25 crore for September quarter.

The Sensex settled at 16,854.93 points, a fall of 344.02 points or 2.0 per cent from its previous close.

European indices were down up to 2.3 per cent in opening trade. Among Asian indices, Hang Seng index declined 1.78 per cent after a sharp fall in Chinese shares. The Singapore market fell by 1.10 per cent, while the Japanese Nikkei dipped 0.62 per cent to close at a four-month low after yen's sharp rise against dollar.

The broader 50-share Nifty of the National Stock Exchange tumbled by 102.60 points, or 2.01 per cent, to close at 5,005.55 points.

Tata Steel results, discomfort due to strengthening of dollar against euro and speculation that Chinese banks intend to raise capital overseas led to selling gaining momentum, Bonanza Portfolio Assistant Vice President Avinash Gupta said.

Among the Sensex pack, Mahindra & Mahindra declined by 3.10 per cent, ITC by 2.85 per cent, Maruti Suzuki by 2.54 per cent, REL Infra by 2.47 per cent, Wipro by 2.22 per cent, IT major TCS by 2.20 per cent, realty giant DLF by 2.18 per cent and India's largest power producer NTPC by 2.09 per cent.

The market breadth was extremely weak with 1,877 declines against 864 advances on the BSE.

Trading volume was relatively low at Rs 4,507.67 crore compared to Rs 4,872.39 on Wednesday. Satyam Computer remained the most active scrip for a second consecutive day and clocked the day's highest turnover of Rs 271.20 crore followed by Tata Steel (Rs 252.33 crore), RIL (Rs 121.53 crore), HDIL (Rs 121.11 crore) and SBI (Rs 121.06 crore).