Sensex falls for second day; global woes, banks weigh

Indian shares fell for a second session on Wednesday, tracking Asian peers, after U.S. Federal Reserve Chair Jerome Powell`s remarks about a potential rise in the number of rate hikes, while uncertainty over state-run banks compounded the decline.

Asian shares took a hit after Powell said each member would write a new "dot plot" rate path ahead of the March meeting and that he wouldn`t want to prejudge the outcome, indicating the possibility of a rate hike in March.

MSCI`s broadest index of Asia-Pacific shares outside Japan slipped 1.06 percent. 

The weak spell in domestic markets lingered on apprehensions over state-run banks after the finance ministry set a 15-day deadline for banks to take pre-emptive action on operational and technical risks, following a $2 billion fraud at Punjab National Bank.

The ministry`s Department of Financial Services also ordered state-run lenders to comb through their bad loans of more than 500 million rupees ($7.68 million) for potential fraud.

"In the short-term, these finance ministry directives could create panic in the market," said Sumit Pokharna, deputy vice president, Kotak Securities.

"There are many loans which are more than 500 million rupees and that could be a problem now, but it is definitely a good step in the long run."

Investors are also looking out for key domestic economic data this week including Oct-Dec gross domestic product (GDP) due later in the day. A Reuters poll forecast GDP expansion at 6.9 percent, the fastest in 2017.

The broader NSE Nifty was down 0.52 percent at 10,499.75 as of 0604 GMT, while the benchmark BSE Sensex was 0.48 percent lower at 34,180.61.

The Nifty PSU Bank index fell as much as 2.7 percent before recovering somewhat, dragged by PNB and Bank of India which fell as much as 6.46 percent and 5.4 percent, respectively.

Tata Motors Ltd was down 1.4 percent after Morgan Stanley suggested avoiding automakers and related component manufacturers that are exposed to the EU premium car market. A top German court ruled on Tuesday in favour of allowing major cities to ban heavily polluting diesel cars.

However, the information technology stocks eked out some gains, with Infosys Ltd rising as much as 1.6 percent.