Indian shares closed lower in volatile trading on Thursday as tensions over Ukraine outweighed the impact of the U.S. Federal Reserve's less-than-feared hawkish stance, reflected in the minutes of its last policy meet.

The NSE Nifty 50 index  fell 0.1% at 17,304, while the S&P BSE Sensex  was down 0.18% at 57,892.01

Russian-backed rebels and Ukrainian forces traded accusations on Thursday that each had fired across the ceasefire line in eastern Ukraine, raising alarm at a time when Western countries have warned of the possibility of a Russian invasion any day.

"Any escalation in the conflict between Russia and Ukraine will make Indian markets very volatile," said Prashanth Tapse, vice president (research), Mehta Equities.

Market expectations for U.S. rate hikes have come down following the Fed minutes, Tapse said, adding that if the Russia-Ukraine conflict did not settle, there was a chance the Fed might push its rate hike plans.

The Fed minutes showed that while policymakers agreed that it would "soon be appropriate" to raise rates, they would re-assess the rate hike timeline at each meeting.

In Mumbai, rate-sensitive banking stocks were the major drags, with the Nifty bank index down 1.1%.

Indian markets have been extremely volatile this week, with major indexes starting the week with a 3% fall on Monday and recovering the losses over the next two days. Markets are now down more than 7% from the all-time highs scaled in October on expectations for higher interest rates globally.

Among individual stocks, Tata Motors  rose as much as 2.6% after J.P. Morgan initiated coverage on the stock with a price target of 630 rupees per share.

Tata Consumer  was the top gainer in the Nifty 50 index, rising 2.8%, while ICICI Bank and Axis Bank  were the top drags, falling 1.8% each.

(Reporting by Nallur Sethuraman in Bengaluru; Editing by Vinay Dwivedi)