The Bombay Stock Exchange benchmark index Sensex on Thursday pared early gains and closed almost flat, as worried funds booked profit after the latest food inflation data further fuelled their fears that the RBI may tighten key policy rates on Thursday.

The 30-share index, which had lost 1,351 points in last six straight sessions of losses, surged to 16,524.69 before ending with a moderate gain of 17.05 points at 16,306.87.

Foreign funds selling to clear their positions on expiry of the January contracts in derivatives segment and investors refraining from buying ahead of the monetary policy on Thursday mainly kept the stocks fluctuating throughout the session.

The National Stock Exchange index Nifty 50, however, fared better with a gain of 14.15 points to 4,867.25, after touching the day's high of 4,929.90.

Food inflation rose to 17.40 per cent for the week ended January 16 from 16.81 per cent in the previous week, according to the official data released on Thursday.

The Reserve Bank in its monetary policy review on Friday may hike cash reserve ratio and key policy rates to check the surging prices.

In 30-BSE kitty stocks, 12 advanced while 18 declined, with the business volume rising to record high this year.