The S&P/TSX composite index dropped 98.85 points to 11,401.78.
The TSX had earlier jumped almost 100 points after Spain admitted Saturday it needed help in recapitalizing its debt-laden banks and eurozone finance ministers responded with up to €100 billion in loans available. The country's banks are stuck with non-performing loans and other toxic assets after the collapse of a real estate bubble. Spain has yet to say how much of this money it will tap.
But the TSX gave up early advances as traders wondered whether Madrid can manage the extra debt and whether it will be forced to ask for further aid.
"I think that’s really the issue and what concerns markets the most," said Chris King, portfolio manager at Morgan, Meighen and Associates.
"There’s more writedowns to come and ultimately it’s a process of writing things off, all the while maintaining liquidity and equity in your banking system as we remove more than a decade of excess from the banking system and there’s always a price to be paid."
The TSX Venture Exchange was off 16.22 points to 1,276.71.
The Canadian dollar also shed early gains as early advances in commodities weakened and the greenback strengthened, closing down 0.4 of a cent to 96.97 cents US.
U.S. markets also shed early gains with the Dow Jones industrial average down 142.97 points at 12,411.23.
The Nasdaq composite index was off 48.69 points to 2,809.73 and the S&P 500 index dipped 16.73 points to 1,308.93.
Uncertainty about the bank bailout was also evident on bond markets. The rate on Spanish 10-year bonds — a direct measure of how much investors trust a country to pay its debt obligations — started the day around six per cent but the yield later rose to 6.47 per cent, edging closer to the seven per cent level that is deemed to be unsustainable.
Prices for oil and metals initially advanced but the July crude contract on the New York Mercantile Exchange ended the session down $1.40 at US$82.70 a barrel. The TSX energy sector slipped 1.65 per cent and Suncor Energy (TSX:SU) gave back 70 cents to C$28.33.
The base metals sector declined about 2.5 per cent as July copper was up six cents to US$3.34 a pound. Ivanhoe Mines (TSX:IVN) moved down 44 cents to C$10.28.
The gold sector was down about 1.2 per cent as August bullion in New York climbed $5.40 to US$1,596.80 an ounce. Barrick Gold Corp. (TSX:ABX) faded 53 cents to C$39.60.
All sectors were negative save for a small advance in consumer staples. Grocer Loblaw Cos. (TSX:L) gained 37 cents to $32.69.
Traders also opted for caution ahead of this weekend when Greek voters head to the polls in an election likely to determine whether the debt-mired country will stick with the euro. If Greece leaves the common currency, that will raise questions about whether others might follow suit.
"There’s enough concern about uncertainty out there that people are not taking undue exposures," added King.
Stock markets have been under increasing pressure over the last six weeks, in particular, as the eurozone debt crisis spread to Spain's banking sector. But the TSX gained almost two per cent last week amid a bout of bargain-hunting after having endured a string of losses that left the main index down more than 11 per cent from its highs of late February.
Meanwhile, traders also digested data from China that came out over the weekend indicating that the government of the world's second biggest economy can concentrate on further measures to boost growth.
China’s statistics bureau said that industrial production grew 9.6 per cent in May from a year earlier, higher than the 9.3 per cent growth registered in April. But it was lower than the 9.9 per cent gain that analysts expected.
Exports rose 15.3 per cent from a year earlier, beating 4.9 per cent growth in April and higher than the 6.9 per cent rise forecast by economists.
On the inflation front, consumer and wholesale price gains eased more than expected with the May consumer price index rising by three per cent, down from 3.4 per cent in April.
There was relief on markets last week after China's central bank cut a key lending rate by 0.25 per cent, its first rate cut in about four years.
In corporate news, convenience store chain Alimentation Couche-Tard (TSX:ATD.B) issued another warning to shareholders of Statoil Fuel & Retail who may be waiting for a higher offer. The Montreal-area company that owns Mac’s and Couche-Tard convenience stores and Circle K gas bars says it won’t pay more for the Scandinavian company. Couche-Tard’s offer values Statoil Fuel at about $2.7 billion. Its shares edged 54 cents lower to $41.15.
Kinross Gold Corp. (TSX:K) was off three cents at $8.48 after it said production had resumed at its Tasiast mine in Mauritania following a labour dispute that was resolved Saturday. The Toronto-based company has said the work stoppage was illegal. It provided no details of how the dispute was resolved in Monday's announcement.
NovaGold Resources Inc. (TSX:NG) said Monday it has signed a deal to sell its Rock Creek property in Nome, Alaska to Bering Straits Native Corp. Financial terms of the deal were not immediately available. NovaGold shares were down 17 cents at $5.96.