Hello Prasad,
By default FI operates in End host for both LAN and FC.
If the virtual machines or OS running on the blades belong to same VLAN and are pinned to same FI,the traffic would get switched locally ( i.e without reaching the upstream switch )
There are few few videos from Brad which provide more info Fabric Interconnect / UCS networking behavior.
http://www.youtube.com/watch?v=4ohGQUraFjE
HTH
Padma