Financial stocks suffered a sharp setback on the Bombay Stock Exchange on Wednesday as a major sell-off by funds dragged the bankex 3.18 per cent lower after oil marketing companies raised petrol prices, fuelling inflation concerns.

Cautious approach adopted by participants ahead of RBI’s monetary policy on Thursday also weighed heavy on the bank and financial stocks.

Widespread losses in bank stocks, pulled the BSE banking index down by 417.51 points, or 3.18 per cent to 12,722.65 points.

Shares of private sector lenders ICICI Bank were down by 3.65 per cent to Rs. 1,078.05, HDFC Bank ended 3.34 per cent lower at Rs. 2,161.45, while Axis Bank lost 0.54 per cent to Rs. 1,296.25.

The country’s largest lender, state0run SBI, too faced selling pressure and ended in negative zone at Rs. 2,696.05, down 3.46 per cent from previous close.

Shares of the mortgage lender HDFC lost 0.72 per cent to Rs. 685.75 on the BSE.

Market analysts attributed the weakness in the financial stocks to hike in fuel prices and a cautious approach adopted by investors, who indulged in off-loading their positions ahead of RBI’s monetary policy on Thursday.

Besides, profit-booking by retail investors after recent gains attributed to the loss. Also, a weak trend on the global markets as Moody’s rating agency placed Spain on review for a possible downgrade sparked fresh fears over the eurozone debt crisis, weighing heavy on financial stocks.

“Profit-booking by retail investors after gains in the past few sessions was another factor behind today’s fall in financial stocks,” said Rajiv Malik, a Delhi-based stock broker.

Other weak counters in this segment were Punjab National Bank, which was down by 2.67 per cent to Rs. 1,204.35, Kotak Mahindra Bank by 3.90 per cent to Rs. 450.10 and Federal Bank by 2.53 per cent to Rs. 405.20.

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