India's benchmark Sensex stock index plunged by nearly 6 per cent in trading Monday on capital outflows by foreign funds tracking the global financial crisis as the Indian markets watchdog removed curbs on foreign funds.

The 30-share-sensitive index, which lost 529.35 points in the previous session, plunged another 724.62 points in the trading on Monday.

It closed the day's trade at 11,801.70 - its lowest point in over two years - a loss of 5.78 per cent.

All the sectoral indices, led by consumer durables goods, metals and realty fell between 3.50 to 11 per cent.

The situation was no different at the National Stock Exchange, where the broader S&P CNX Nifty traded at 3,602.35 for a loss of 5.66 per cent.

Brokers said there was a major selloff by foreign funds in metals, capital goods, oil and gas, and banking stocks despite the rescue plan for the US financial industry that was passed last week by the US Congress.

Trading turned distinctly weak after reports that the credit crisis had deepened in Europe apart from falls in other bourses and the Indian rupee depreciating against the US dollar.

Soon after the markets plunged on Monday, the Indian markets regulator, the Securities and Exchange Board of India, removed some curbs on foreign funds like the 40 per cent cap on participatory notes and overseas derivative instruments.

The regulator also decided to review the entire working of foreign institutional investors (FIIs) in the country and said a policy paper will soon be floated to invite comments and suggestions from all stakeholders, the IANS news agency reported.

"The 40 per cent cap on assets under custody in the cash market will also be removed," SEBI chairman CB Bhave said, signalling the regulator's move to curb the outflow of investments by foreign funds.

Foreign funds are estimated to have sold over 9 billion dollars worth of equity in Indian stock markets this year, resulting in a drop of over 30 per cent in the Sensex during a 52-week period.