The S&P/TSX composite index was down two per cent or 238.71 points at 12,148.83. The TSX Venture Exchange lost 39.57 points to 1,745.53.
The Canadian dollar was up 0.40 of a cent at 100.80 cents US after earlier dipping below parity for the first time since January as investors nervous about Europe's debt problems sought safety in the U.S. dollar. It had earlier fallen to a low of 99.73 cents US before markets opened.
Gold, usually also considered a safe haven, fell $46.20 to US$1,813.30 an ounce as investors liquidated their positions in the precious metal. Gold producers on the TSX also racked up losses with Goldcorp Inc. (TSX:G) shares down 4.3 per cent or C$2.36 to $52.55 and shares in Barrick Gold Corp. (TSX:ABX) off 2.8 per cent or C$1.52 to $52.87.
Crude oil prices bounced back from earlier losses to add 95 cents to US$88.19 a barrel. On the TSX, shares in Canadian Natural Resources (TSX:CNQ) lost 62 cents to C$33.53.
Copper prices fell four cents to US$3.97 a pound.
The energy, materials, gold and mining indices were each down more than two per cent.
The mining sector was the biggest loser on the TSX, down 3.9 per cent with shares in Teck Resources Ltd. (TSX:TCK.B) down $1.45 to C$39.13.
Wall Street markets, not as sensitive to declines in commodity prices, closed higher after turning around earlier losses. The Dow Jones industrial average added 68.99 points at 11,061.12, while the S&P 500 index gained 8.04 points to 1,162.27. The Nasdaq index was up 27.10 points to 2,495.09.
"September is traditionally one of the worst months of the year for stock markets in particular and this year looks to be no exception," said Colin Cieszynski, a market analyst at CMC Markets Canada.
"Global markets have maintained their downward course overnight with uncertainty and confusion over the ongoing Greek debt crisis and its potential impact on European banks continues to send many fleeing the scene."
European shares plummeted. Britain's FTSE 100 lost 1.6 per cent. Germany's DAX fell 2.3 per cent, while France's CAC-40 plunged four per cent.
"Greece basically has its back against the wall," said Tom Kaan, head of equity sales at Louis Capital Markets in Hong Kong. "Having said that, the concern I have is no longer Greece. Greece has to default."
The bigger concern, he said, is whether other European countries like Italy will follow.
"We'll see still more sludge on the downside before things get better," Kaan said.
Debt-crippled Greece urgently needs to keep a program of cutbacks on track to secure the continued flow of international rescue loans — worth euro219 billion (US$302.6 billion) — protecting it from a catastrophic bankruptcy.
Investors are also worried that ratings agencies may downgrade the credit ratings of French banks, which could bring more instability to Europe's beleaguered financial system.
A default by Greece or one of the continent's other heavily indebted governments could ripple through the global banking system and make it more difficult for other European countries to borrow money. Economists worry that Europe's financial crisis could tip a weakening U.S. economy into another recession.
The resignation of a key European Central Bank official combined with worries over a new recession in the United States led to a large stock market sell-off on Friday. The TSX closed last week down 1.7 per cent and the Dow Jones Industrials finished the week down 2.7 per cent.
In Canadian corporate news, Enbridge Inc. (TSX:ENB) announced plans Monday to spend $1.2 billion to expand its Athabasca pipeline system in order to accommodate increased production from the burgeoning Kirby oilsands region south of Fort McMurray, Alta. Shares lost 27 cents to $31.58.
Mosaid Technologies Inc. (TSX:MSD) says it is exploring a "broad range of alternatives" to Wi-LAN Inc.'s (TSX:WIN) offer of $38 per share. Mosaid shares lost 55 cents to $39.12, while Wi-LAN shares fell three per cent, or 21 cents, to $6.75.
Design software maker 20-20 Technologies Inc. (TSX:TWT) posted third-quarter net earnings of $403,000, or two cents per share, sliding from $840,000, or four cents per share, a year ago. Revenues increased 17.6 per cent to $17.4 million. Shares were up two cents at $2.77 each.
And Coastal Contacts Inc. (TSX:COA) posted a third-quarter loss of $1.5 million from a profit of $529,000 a year ago on higher overall costs. Sales increase to $49.6 million from $39.5 million. Shares lost four cents to $2.65.