Mumbai, Jan 6 (IANS): The Indian stock market closed sharply lower on Monday as oil prices rose for the second consecutive day amid escalating tension between the US and Iran. The benchmark Sensex lost 788 points and the broader Nifty slipped below the psychologically important level of 12,000.

Global oil benchmark, Brent Crude, surpassed the $70 a barrel mark on Monday, sparking fears of price rise in items of everyday use. The rising oil prices is especially significant as Indian imports nearly 85 per cent of its oil requirements.

The Sensex settled at 40,676.63 while the Nifty closed at 1,993.05 after a broad-based sell-off in the equity markets. Only 4 of the Nifty50 stocks ended higher and none of the sectoral indices ended in the green. The top sectoral loser was Nifty PSU index, which closed 4.34 per cent lower.

Rusmik Oza of Kotak Securities said: "Indian market is reacting more negatively than other emerging markets due to crude oil impact. Since our dependence on crude imports as a percentage of consumption is the highest, the impact on the economy and markets is also higher."

Iran on Sunday said it will no longer abide by any of the limits imposed by 2015 nuclear deal, sparking fears of a military conflict. In a series of aggressive tweets, US President Donald Trump said that the US will retaliate if Iran chooses to attack any American base.

Vinod Nair, Head of Research, Geojit Financial Services said that "the ground reality is unstable.. And investors are closing their current position and shifting to haven assets leading to a mount in bond yield, oil and gold prices".

US markets, Dow Jones Industrial Average and S&P 500 had closed nearly 1 per cent lower. Most European markets like FTSE 100 Index and DAX Index fell nearly 2 per cent while Asian markets like Nikkei and Hang Seng also traded with heavy losses.