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Indian shares succumbed to selling pressure in a volatile session, as a pullback in financials after a recent rally weighed and fading hopes of an early U.S. rate cut also hurt sentiment.

The NSE Nifty 50 index fell 0.38% to 21,771.70, while the S&P BSE Sensex settled 0.49% lower at 71,731.42.

Both indexes rose about 0.5% each during the session, before reversing gains in the final hour of the trading session.

The Nifty volatility index rose 6.26% to hover around its 10-month high, hit on Jan. 30.

"Valuations have gone through the roof, driven by high liquidity; this could trigger bouts of volatility in the markets," said Deven Choksey, managing director of DRChoksey Finserv.

While the outlook for Indian markets remains positive, there could be further consolidation after the recent rally to record highs, Choksey added.

Financial services, the highest weighted of the 13 major sectoral indexes, fell 0.58%. It had gained 1.7% in the previous week, its best in two months.

Meanwhile, fading hopes of early rate cuts in the U.S., on the back of strong labour market data and weakness in China's market, dragged Asian equities down. [MKTS/GLOB]

"The rate cut in the U.S. will happen mostly in the second half of 2024," said Santosh Pandey, president and head of Nuvama Professional Clients Group, adding that the delay in U.S. rate cuts could keep a lid on gains in domestic equities.

On the other hand, auto stocks gained 1.21%, led by Tata Motors, which surged 5.47% to a record high after reporting a more than two-fold rise in December-quarter profit.

Oil and gas stocks gained 1.44%. Bharat Petroleum Corporation Ltd, Hindustan Petroleum Corporation Ltd and Indian Oil Corporation extended their post-results rally, rising between 2.9% and 7%.

Agriculture chemicals maker UPL tumbled 11.18% on weak quarterly results. One 97 Communications slumped further after a regulatory crackdown, dropping 10%.