Uncertainty over the level of participation by private creditors in Greece's planned bond swap two days before a critical deadline also discouraged buyers.
The S&P/TSX composite index tumbled 225.31 points to 12,298.63 while the TSX Venture Exchange fell 50.93 points to 1,604.87.
Falling prices for oil and metals pushed the commodity-sensitive Canadian dollar down 0.64 of a cent to 99.94 cents US.
U.S. indexes were also deep in the red as the Dow industrials lost 203.66 points to 12,759.15. The Nasdaq fell 40.16 points to 2,910.32 and the S&P 500 index was down 20.97 points to 1,343.36.
Concerns about China's slowing growth continued to dampen sentiment after premier Wen Jiabao announced Monday that the country was targeting a lower growth rate of 7.5 per cent, compared with eight per cent before.
"If China is not immune to this global economic slowdown, then as far as I'm concerned nobody is really immune," said Gareth Watson, vice-president investment management and research at Richardson GMP Ltd.
Strong Chinese growth has been an important prop for a global economy still struggling to recover from the 2008 financial crisis, and that growth has also supported higher commodity prices and rising stock prices on the resource-heavy Toronto stock market.
Other data showed that the eurozone economy contracted during the fourth-quarter. Gross domestic product dropped 0.3 per cent from the previous quarter, with weakness across all the subcomponents.
Yet another report showed that Brazil's economy expanded 2.7 per cent last year, well below the 7.5 per cent growth seen in 2010. Officials say the economic problems in Europe and the U.S. are mostly to blame because of lower demand for Brazil's commodities.
"To a degree, there should not there be any surprise that you're seeing some of these, let's call them the last decade's growth engines, kind of slow down a bit," added Watson.
"The key here is not that they're slowing down, because we knew that would happen. The key here is they don't slow down too much."
Greece was also on investors' radars ahead of Thursday's expected announcement of the level of participation in the country's bond swap. The so-called Private Sector Involvement, or PSI, is an integral part of Greece's second bailout without which the country could default.
On Monday, the banking group leading negotiations on behalf of the creditors said that 12 of the largest investors have committed to participating in the plan.
The success of the deal depends on high participation and many more will need to sign up by Thursday for Greece to avoid default.
Copper was among the biggest commodity losers Tuesday, as the May contract on the New York Mercantile Exchange lost 12 cents to US$3.74 a pound on top of a four cent loss Monday amid demand concerns. China is the biggest consumer of the metal, widely viewed as an economic barometer because it is used in so many businesses.
The base metals sector backed off 3.77 per cent as Teck Resources (TSX:TCK.B) fell 72 cents to C$35.48 and First Quantum Minerals (TSX:FM) lost $1.35 to $20.60.
The energy sector lost 2.8 per cent as April crude contract on the Nymex declined $2.02 to US$104.70 a barrel. Canadian Natural Resources (TSX:CNQ) dropped 36 cents to C$35.25 and Suncor Energy (TSX:SU) was down $1.49 to $33.32.
Bullion also sold off as the April contract lost $31.80 to US$1,672.10 an ounce. The gold sector fell about 1.6 per cent and Barrick Gold Corp. (TSX:ABX) shed 66 cents to $45.72 and Goldcorp Inc. (TSX:G) faded 76 cents to $46.89.
The financials sector was down 1.5 per cent. Insurers led losses with Manulife Financial (TSX:MFC) down 50 cents to $11.81 while Sun Life Financial (TSX:SLF) fell 85 cents to $20.75.
Scotiabank (TSX:BNS) reported its quarterly profits rose to $1.44 billion, or $1.20 per share, up from $1.25 billion or $1.08 per share a year earlier. Revenue grew to $4.64 billion from $4.19 billion. Scotiabank also raised its dividend by three cents a share to 55 cents but its shares slipped 77 cents to $52.94.
In other earnings news, Uranium One Inc. (TSX:UUU) improved its fourth-quarter results in 2011 helped by the absence of a series of one-time items booked a year earlier. The company, one of the world's largest publicly traded uranium producers, posted a $1.1-million loss in the fourth quarter, or nil per share, compared to a $112.9-million loss a year ago. Revenue grew to $157.9 million from $152.3 million and its shares slipped nine cents to $2.97.
Ontario-based auto parts manufacturer Linamar Corp. (TSX:LNR) reported after the close that quarterly net income rose to $27 million or 42 cents per share on $718 million of sales. Its shares had closed 75 cents lower at $18.40.
Heavy equipment, industrial component and power system provider Wajax Corp. (TSX:WJX) was one of the few positive stocks. Its shares gained $2.12 or 4.81 per cent to $46.21 as it raised its monthly dividend by 35 per cent to 27 cents a share.
It also reported a fourth-quarter profit of $16.6 million or $1 per share, up from a year-earlier $15.8 or 95 cents per share.
And TransCanada Corp. (TSX:TRP) said a new route for the controversial Keystone XL oil pipeline through Nebraska should be ready within weeks with "relatively modest" changes. Alex Pourbaix, president of TransCanada’s energy and oil pipelines division, said the company is working closely with the Nebraska government to find a path that avoids the ecologically sensitive Sandhills region of the state. Its shares gained 65 cents to $42.97.