The S&P/TSX composite index lost 143.66 points to 11,871.33, after the U.S. Labour Department reported that the economy created only 115,000 jobs during April, far less than the approximately 160,000 that economists expected.
"The very modest increase in U.S. non-farm payrolls in April will raise fears that the recovery is fading fast, just like it did at this time last year," said Paul Ashworth, chief U.S. economist at Capital Economics.
On the bright side, the unemployment rate edged down 0.1 of a point to 8.1 per cent and revisions to the past two months added an additional 53,000 jobs.
Economic worries pushed the TSX down 366 points or 2.99 per cent this week, leaving the Toronto market 0.7 per cent below where it started the year.
The TSX Venture Exchange was off 11.43 points to 1,405.1.
The Canadian dollar declined after the release of the jobs data, off 0.67 of a cent to 100.45 cents US.
U.S. markets also fell sharply with the Dow Jones industrials down 168.32 points to 13,038.27.
The Nasdaq composite index lost 67.96 points to 2,956.34 and the S&P 500 index declined 22.47 points to 1,369.1.
The energy group fell 2.7 per cent as further signs of economic weakness that could erode demand sent crude prices tumbling. The June contact on the New York Mercantile Exchange plunged $4.05 to US$98.49 a barrel, the first time oil has been under $100 since February.
Government data shows that U.S. oil consumption dropped 5.3 per cent in the first quarter, and supplies have been growing for the last six weeks.
The European economy is also slowing down as eurozone governments continue to struggle with a mountain of debt.
Suncor Energy (TSX:SU) gave back $1.13 to $30.19 and Cenovus Energy (TSX:CVE) shed $1.77 to $32.18.
The metals and mining sector lost just over three per cent with copper down two cents at US$3.72 on top of an 11-cent loss over the last two days. Teck Resources (TSX:TCK.B) ran down 55 cents to $34.79 and Mercator Minerals (TSX:ML) dropped 18 cents or 15 per cent to $1.02.
The financials sector was also a major source of weakness, down 1.47 per cent with Manulife Financial (TSX:MFC) down 33 cents to $12.65 while Royal Bank (TSX:RY) fell 87 cents to $54.96.
The gold sector was the leading advancer, up about 1.2 per cent as bullion prices ran up after four losing sessions with the June contract up $10.40 to US$1,645.20 an ounce. Goldcorp Inc. (TSX:G) climbed 48 cents to $36.43 and Barrick Gold Corp. (TSX:ABX) advanced 17 cents to $37.69.
Commodities have been under pressure this week amid weak manufacturing data from Europe and China while a key gauge of the performance of the U.S. non-manufacturing sector showed further expansion during April but at a slower pace than expected. The sector accounts for 90 per cent of the U.S. economy.
At the same time, there are analysts who think the pessimism is overdone.
Chris King, portfolio manager at Morgan, Meighen and Associates, pointed out that the job statistics at least indicate that there is still job growth.
"And what’s more important is that unemployment is still trending down," he said.
"You will have these gyrations but the market for some reason focuses on these things and extrapolates the worst to the nth degree. I have no qualms about the continued recovery in the U.S."
On Friday, investors also focused on weekend elections in France and Greece. In France, President Nicolas Sarkozy has for weeks looked like he would lose to his socialist rival Francois Hollande, but recent opinion polls suggest the election could be tighter than expected.
Though a change in leadership in Paris could prompt a change in the way Europe responds to the debt crisis that’s already seen three countries bailed out, the elections in Greece have the potential to prompt far more volatility once markets reopen on Monday.
That is because the traditional parties of right and left will not get anything like the level of support they have been used to. New Democracy and Pasok are backing the harsh terms of the most recent bailout, unlike many of the smaller parties that may well garner some support in Sunday’s elections.
Traders also took in news that TransCanada (TSX:TRP) has applied to the U.S. government for a new permit to build its controversial Keystone XL oil pipeline. The line would run from Hardisty, Alta., to Steele City, Neb. The application will include a new route through Nebraska that will skirt around the ecologically sensitive Sand Hills region. TransCanada shares were unchanged at $42.95.
The major earnings news of the day came from Air Canada. Its first-quarter loss came in at $210 million, far higher than last year’s first quarter loss of $19 million as the carrier was buffeted by higher fuel costs and labour disruptions. It also took a hit from the bankruptcy of the company that formerly overhauled its planes. The loss amounted to 76 cents per share while the adjusted net loss was 64 cents per share.
By both measures, Air Canada (TSX:AC.B) did better than consensus estimates compiled by Thomson Reuters. Analysts had expected a net loss of 77 cents per share and adjusted loss of 78 cents per share. Air Canada's shares were up four cents to 96 cents.
Elsewhere, GMP Capital Inc. (TSX:GMP) fell 34 cents or 5.72 per cent to $5.60 as it reported a net loss attributable to common shareholders of $2.3 million or four cents per diluted share in the first quarter, compared with net income of $22.5 million or 29 cents per diluted share in the same 2011 period. Revenue was $66.1 million, down 43 per cent.