A bout of volatility was witnessed in morning trade as the key indices once again sank in negative zone after briefly turning positive. At 10:13 IST, the barometer index, the S&P BSE Sensex, was down 87.92 points or 0.22% at 40,179.70. The Nifty 50 index was down 33.75 points or 0.28% at 12,054.80.

Key indices cut losses soon after opening with downward gap.

The S&P BSE Mid-Cap index was up 0.32%. The S&P BSE Small-Cap index was up 0.25%.

The market breadth, indicating the overall health of the market, was positive. On the BSE, 1012 shares rose and 826 shares fell. A total of 90 shares were unchanged.

Overseas, most Asian stocks were trading lower as an intensifying U.S.- China trade war inflamed concerns about global growth. US stocks finished mostly lower Monday, as the government stepped up scrutiny of technology giants for possible violations of antitrust law.

Comments from the US Federal Reserve on Monday, meanwhile, raised expectations the U.S. central bank is moving closer to a rate cut, as did a closely watched U.S. factory survey.

In US economic data, the Institute for Supply Management said its US Manufacturing Purchasing Managers Index declined to 52.1 in May from 52.8 in April, marking the lowest level since October 2016.

Back home, Yes Bank (up 2.24%), NTPC (up 1.4%), Power Grid Corporation of India (up 1.27%), ITC (up 1.22%) and L&T (up 1.09%) edged higher from the Sensex pack.

HCL Technologies (down 1.91%), TCS (down 1.89%), Hero MotoCorp (down 1.88%), Bajaj Auto (down 1.49%) and Asian Paints (down 1.45%) edged lower from the Sensex pack.

Lemon Tree Hotels fell 1.17%. Lemon Tree Hotels announced that the 'Red Fox Hotel, Chandigarh', 102 room property, which was earlier being operated by Carnation Hotels, a subsidiary and management arm of the company has been taken on lease from the owners of the hotel by Fleur Hotels, a material subsidiary of the company and now the hotel is being operated by the company under the same brand.

CESC Ventures fell 0.8%. CESC Ventures announced that it has acquired 64.63% stake in Herbolab India for an aggregate amount of Rs 32.17 crore. Herbolab makes ayurvedic medicines and products under the brand name 'Dr. Vaidya's'.