At one point, the Sensex had fallen over 900 points while going down 300 points in the morning session
Hong Kong was the worst performer with its Hang Seng index down 1.3 per cent.
For the week, the NSE Nifty weakened 0.64 per cent while the BSE Sensex was down 0.78 per cent, its biggest weekly fall since the week ended May 18.
Nifty 50 crossed the 11,700 mark for the first time ever at 11,700.95 just before the closing time on Monday.
Technology stocks led the Nasdaq above the 8,000 mark for the first time and the sector provided the biggest boost to the S&P 500.
The broad-based S&P 500 index rose to a peak 2,873.23, beating the previous record hit on January 26th
Sentiment took a hit after the country's trade deficit soared to a near five-year high of $18 billion in July.
The stock soared 8.31 per cent to settle at Rs 1,300 on the BSE.
The index has taken 11 sessions to scale the 38,000 mark from 37,000 level reached on July 26.
The Sensex opened with gains and rallied to a fresh life-time high of 37,876.87 in early trade.
The charge was led by the Banks with Bank of Baroda surging ahead and ICICI stocks going up 3 per cent on strong June quarter.
On Friday morning, the Nifty breached the 11,200-mark for the first time.
The 50-share NSE Nifty too turned cautious and was trading 4.40 points
A sharp recovery in the rupee from its record low also supported the bounce back, brokers said.
In morning trade today, Reliance Industries stocks zoomed to hit a fresh 52-week high of Rs 1,091 apiece.