Financial markets witnessed a sharp fall on Thursday as investors dumped equities to shore up safer assets like the U.S. dollar, pushing the rupee’s value down against the dollar.

The benchmark Bombay Stock Exchange (BSE) 30-Share Sensitive Index (Sensex) tumbled by 387.91 points, or 1.93 per cent, to close at 19674.33.

The rupee breached the psychological level of 56 per a U.S. dollar to touch 56.01 in the intra-day. It closed at 55.59/60, against its previous close of 55.46/47. It dropped below the 56 level for the first time since September 2012.

China’s manufacturing activity contracted to seven-month low in May, which raised concerns in the global markets that recovery of the world’s second largest economy might slow down. On Wednesday, U.S. Federal Reserve Chairman Ben Bernanke said the economy still needed aid, and scaling down of the bond-buying program could lead to substantial risk of slowing or ending the economic recovery. This statement disappointed global markets, which expected an early recovery.

An attempt by Union Finance Minister P. Chidambaram to talk up the market failed to yield any result, but succeeded in saving it from a major crash.

More In: Today's Paper