The 30-scrip sensitive index (Sensex) of the Bombay Stock Exchange (BSE) ended the week 2.69 percent or 466.24 points down at 16,839.63 points.
Indian markets witnessed extremely volatile trading this week amid global mayhem following a ratings downgrade of the US economy by Standard and Poor's (S&P) last weekend.
The international credit rating agency Aug 5 downgraded the top notch AAA credit rating of the US government's ability to pay back its creditors and investors to AA+. This is the first time the US economy rating has been downgraded.
The benchmark Sensex plunged over 500 points in the early morning trade Monday. Amid volatility, the 30-scrip index lost 291 points on the first trading day of the week.
Although the Sensex rebounded 272 points Wednesday, the gain was temporary and the index slumped 243 points on the weekend.
At the National Stock Exchange, the 50-scrip S&P CNX Nifty also slumped almost three percent this week. The Nifty closed 1.27 percent down at 5,072.95 points Friday.
Speculations of another rate hike by the Reserve Bank of India (RBI) also dampened investors sentiments at the Indian markets.
Latest data released showed industrial output growing by a healthy 8.8 percent, which sparked fears that the RBI may hike rates again in September to control rising inflation.
"For the time being it will strengthen the case for further tightening by the RBI. Food inflation has again firmed as per the latest data. Given that demand has not moderated to the extent desired by the RBI, markets would be concerned that another rate hike could not be ruled out," said Sanjeev Zarbade, vice president with Kotak Securities.
Major Sensex losers Friday were: Tata Motors, down 5.26 percent at Rs.801.10; Hindalco, down 4.04 percent at Rs.150.85; Jaiprakash Associates, down 3.28 percent at Rs.61.95 and Tata Power, down 3.12 percent at Rs.1,088.35.
Gainers included: Jindal Steel, up 2.57 percent at Rs.524.70; M&M, up 1.82 percent at Rs.740.30; Hero MotoCorp, up 1.79 percent at Rs.1,890.80 and ONGC, up 0.76 percent at Rs.279.30.
After witnessing heavy selling pressure, major Asian markets ended the week on a dull note.
The Japanese Nikkei ended the week 0.2 percent lower at 8,963.72 pointsHong Kong's Hang Seng ended marginally down at 19,620.01 points, while the Chinese Shanghai Composite index nudged up 0.45 percent to 2,593.17 points.
European and American markets, however, ended the week on a positive note despite mayhem during the first 2-3 trading sessions.
Short selling restriction of financial stocks in some Euro-zone countries helped buying interest in banking stocks.
Britain's FTSE 100 closed 3.04 percent higher at 5,320.03 points, the German DAX advanced 3.45 percent at 5,997.74 points and the French CAC 40 closed 4.02 percent higher at 3,213.88 points Friday.
American markets also ended the week on a positive note. The Dow Jones Industrial Average closed 1.13 percent higher at 11,269 points and the S&P 500 index advanced 0.53 percent at 1,178.81 points.