Shares pared early gains to fall for the sixth session in seven on Thursday, dragged down by blue-chips as investors chose to pause despite clarifications from the Finance Ministry over the Government's taxation policies.

The Sensex closed lower by 155 points or 0.56 per cent at 27,735.02 while the NSE Nifty finished 38.65 points or 0.46 per cent down at 8,391.05.

Senior Finance Ministry officials sought to calm a tax row on Wednesday, promising foreign investors a favourable environment, but stopped short of scrapping unpopular plans to claim retrospective payments.

Foreign institutional investors sold Indian shares worth Rs 910 crore ($144.08 million) on Wednesday, provisional exchange data showed.

Sentiment remained cautious as corporate earnings continued to miss estimates, while a forecast for poor rains ahead of the June-to-September monsoon season raised concerns of drought.

"We expect some more downfall. Whatever earnings that came out are not that great, and valuations are way high. We are not in a hurry to buy. And we advise clients to wait for some more time," said Daljeet S Kohli, head of research at IndiaNivesh.

Blue-chip stocks led the decline. Larsen and Toubro fell 1.5 per cent, State Bank of India lost 2.5 per cent, Tata Motors was down 2.35 per cent, NTPC dropped 2.33 per cent and Sun Pharma finished lower by 2.78 per cent.

Wipro Ltd fell 1.8 per cent, adding to its 5.8 per cent fall in the previous session after its earnings missed some analysts' expectations.

However, shares in steel companies gained, with Tata Steel rising 4.8 per cent after Bank of America-Merrill Lynch reinstated coverage with a bullish stand.

On the currency front, the rupee fell below 63 and was quoting at 63.18.

Meanwhile, rating agency Moody’s today said emerging economies in the Asia-Pacific region, including India, have a high degree of immunity to external shocks, but will face challenges when the US Federal Reserve begins raising interest rates.In a relief to foreign investors slapped with tax demands worth around Rs 40,000 crore, the Government yesterday said such levies would not be applicable to the entities based in countries having double taxation avoidance pacts with India, while others can approach the courts for reprieve.

European markets

European stock markets opened higher, spurred by multi-year highs in Asia, but the mood soured after sluggish euro zone and German purchasing manager data followed another dire set of numbers from France.

It meant that, overall, euro zone private sector business growth was weaker than forecast, despite a big fall in the euro that could support exports and the launch in March of a much-awaited sovereign bond buying programme from the European Central Bank.

Asian stocks

Asian shares weathered a soft reading on Chinese manufacturing on Thursday as it only whetted expectations for more policy stimulus there, while a sharp rise in British and German bond yields rippled through global debt markets.

Among the milestones were a 15-year peak for Japan, seven years for both China and Taiwan and a near four-year top for South Korea. MSCI's broadest index of Asia-Pacific shares outside Japan added 0.5 per cent to reach ground last trod in early 2008. Japan's Nikkei was up 0.3 per cent while South Korea gained 1.4 per cent. Shanghai stocks climbed 1 per cent, with investors still emboldened by a commentary in state media saying the bull market "has just begun".

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