(Reuters) -Indian shares closed lower on Wednesday, as escalating hostilities in the Middle East dampened investor sentiment ahead of the U.S. Federal Reserve's monetary policy decision.

The Nifty 50 fell 0.17% at 24,812.05 and the BSE Sensex lost 0.17% to 81,444.66.

Both the benchmarks swung between 0.3% gains and losses in morning trade before settling lower.

Losses were broad-based, with ten of 13 sectoral indexes declining. The more domestically focussed small-caps and mid-caps fell 0.2% and 0.5%, respectively.

Broader Asian markets fell, with the MSCI Asia ex-Japan index down 0.4%, as the Israel-Iran war stretched into its sixth day, amplifying fears of regional escalation.

Investors were also cautious ahead of the U.S. Federal Reserve's policy decision due after markets close on Wednesday.

The Fed is expected to keep rates unchanged, but markets will parse its revised economic projections for clues on the path ahead.

"Middle East tensions have stirred volatility, but the strong dip buying shows investors are not hitting the panic button just yet," said Amit Jain, co-founder of Ashika Global Family Office.

"Unless the geopolitical shocks intensify, the pullbacks may prove fleeting, as robust domestic inflows continue to anchor the markets," Jain said.

Domestic institutional investors purchased Indian shares worth 82.07 billion rupees (about $950 million) on Tuesday, marking their 21st straight session of net buying.

Among individual stocks, IndusInd Bank surged 5.1% after Nomura upgraded the lender's stock to "Buy" from "Neutral" and raised the target price, citing a significant clean-up of its books.

Reliance Infrastructure climbed 5% after its unit and France's Dassault Aviation announced a partnership to manufacture Falcon 2000 business jets in India.

Hindustan Zinc fell 6.9% after parent Vedanta sold a 1.6% stake in the miner via a $350 million block deal at a 7% discount to last close.

($1 = 86.2700 Indian rupees)

(Reporting by Bharath Rajeswaran in Bengaluru; Editing by Nivedita Bhattacharjee, Mrigank Dhaniwala and Rashmi Aich)

By Bharath Rajeswaran