Dealers expect the market to trade in a narrow range until quarterly earnings announcements, which would begin next month.

Reliance has written to the upstream regulator indicating gas output from the D1 and D3 fields in the Krishna-Godavari basin KG-D6 block may fall to 38 million standard cubic metres per day (mscmd) during 2012/13 from 42-43 mscmd now, the source, with knowledge of the letter, said on Friday.

After market hours, Reliance said in a statement the figures were "purely provisional and indicative," adding projections on gas output could vary.

Reliance Industries, the country's top-listed firm, fell the most in nearly 11 months and closed 3.7 percent lower at 993.15 rupees. The news report erased $2.8 billion off the energy major's market capitalisation.

"News flow on the E&P (exploration and production) business will continue to influence stock performance," JP Morgan analysts Pradeep Mirchandani and Neil Gupte said in a note.

JP Morgan said that with a drop in output, Reliance's FY12 EPS could be around 11.5 percent lower.

The stock was the fourth-most traded on the National Stock Exchange. A total of 11.1 million shares changed hands on the BSE and NSE, nearly twice times the 90-day average daily volume.

The 30-share BSE index declined 1.49 percent or 271.06 points to 17,878.81, taking its losses for the week to 1.6 percent, with 28 of its components closing in the red.

"Weakness in Reliance Industries weighed on the market today," said Gajendra Nagpal, CEO of Unicon Financial.

"The market should trade in a tight range in the near term. There is no immediate trigger. The next big trigger is quarterly earnings," he said, adding, he sees the 50-share Nifty trading in a range of 5,250-5,500 points next week.

Foreign funds have trimmed their exposure to emerging markets such as India on inflationary concerns and rising borrowing cost. They have sold $1.7 billion worth of Indian shares this year until March 16, dragging the main index down 12.8 percent.

Japan's devastating earthquake and tsunami last Friday and worsening nuclear crisis have also prompted investors to shun riskier bets and opt for safe-haven assets.

Investors pulled $2.2 billion from emerging stocks in the days following the Japanese quake as emerging debt funds received small net inflows, investment banks said on Friday, citing data from EPFR Global.

Financial shares extended losses for the second session after the central bank raised interest rates on Thursday for the eighth time in 12 months, and its comments seemed to suggest a hawkish stance.

Leading lender State Bank of India shed 1.1 percent, while rivals ICICI Bank and HDFC Bank dropped 0.9 percent and 1.6 percent respectively.

Mortgage lender Housing Development Finance Corp fell 2.6 percent.

In the broader market, losers beat gainers in the ratio of 1.8:1, while 251 million shares changed hands on the BSE, lower than their 30-day average volume of 276 million shares.

The 50-share NSE index declined 1.3 percent to 5,373.70 points.

The MSCI world equity index rose 0.2 percent at 1051 GMT, while the emerging marketing index climbed 0.3 percent.

STOCKS THAT MOVED

* State-run oil marketing companies declined as oil rose more than $2 a barrel, after the United Nations approved military action to contain Libyan leader Muammar Gaddafi, heightening geopolitical tensions in the oil-rich Middle East.

After the Indian stock market closed for trade, Brent crude turned negative as China raised reserve rate requirements and as the market reassesed its reaction to news of the United Nations' approval for military action in Libya.

Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum Corp fell between 1.1 percent and 2.2 percent.