But losses were sharply limited by a solid rise in the energy sector in the wake of two major acquisitions in the Canadian resource industry.
China National Offshore Oil Company is picking up Calgary-based oil and gas producer Nexen Inc. (TSX:NXY) (NYSE:NXY) for US$15.1 billion in cash. CNOOC is paying $27.50 a share, a 61 per cent premium on the closing price of its shares on Friday at the New York Stock Exchange. On the TSX, its shares soared 52.4 per cent to $26.35 on very high volume of 45.4 million shares.
And Talisman Energy Inc. (TSX:TLM) is selling its 49 per cent interest in its U.K. North Sea assets to Chinese firm Sinopec Corp. for $1.5 billion. Its shares jumped 75 cents or 6.79 per cent to $11.80.
Toronto's S&P/TSX composite index was well off early lows, coming back from a 206-point slide to close down 77.37 points to 11,545.54 while the TSX Venture Exchange declined 22.03 points to 1,174.16.
The Canadian dollar was down 0.4 of a cent to 98.35 cents US as nervous traders flocked to the safe haven status of U.S. Treasuries.
U.S. markets also racked up losses as the yield on Spain’s benchmark 10-year bond surged to 7.45 per cent, its highest level since the euro was established in 1999.
But New York indexes were also off the worst levels of the session as the Dow Jones industrials fell 101.11 points to 12,721.46.
The Nasdaq composite index lost 35.15 points to 2,890.15 and the S&P 500 index was down 12.14 points to 1,350.52.
If Spain’s borrowing rates continue to rise then Spain may end up being locked out of international markets and be forced to seek a financial rescue, just like Greece, Ireland and Portugal.
"You would think that after a number of months and all the discussions we have had about this kind of thing that maybe somebody might have decided it was time to do something," said Fred Ketchen, manager of equity trading at Scotia Capital.
"I’m not sure they have done anything that has caught the imagination or approval of the investing world."
On Friday, Spain’s eurozone partners agreed to lend the country up to €100 billion in funds to bail out banks laden down with toxic assets following the collapse of the country’s real estate bubble over the past four years.
Worries about how the worsening eurozone debt crisis could impact the global economy and a higher American dollar punished commodity prices.
A stronger greenback usually helps depress commodity prices, which are denominated in U.S. dollars, as it makes oil and metals more expensive for holders of other currencies.
But the TSX energy sector ran ahead 2.33 per cent even as the September crude contract on the New York Mercantile Exchange dropped $3.69 to US$88.14 a barrel. The rise was due to the sharp price moves in Nexen and Talisman and hopes that other companies will be scooped up. Athabasca Oil (TSX:ATH) gained 26 cents to $12.41. Elsewhere in the sector, Imperial Oil (TSX:IMO) shed 73 cents to $42.96.
The base metals sector fell 3.24 per cent as metal prices also backed off with September copper down seven cents to US$3.38 a pound. Teck Resources (TSX:TCK.B) gave back 79 cents to C$29.80 and Ivanhoe Mines (TSX:IVN) shed 13 cents to $8.37.
And August bullion lost $5.40 to US$1,577.40 an ounce, pushing the gold sector down about 1.8 per cent. Barrick Gold Corp. (TSX:ABX) faded 82 cents to C$34.13.
All TSX sectors were lower with the financial index down 1.59 per cent. TD Bank (TSX:TD) dropped 95 cents to $79.05 while Sun Life Financial Inc. (TSX:SLF) shed $1.09 to $20.82.
The industrials sector gave back 0.91 per cent while Canadian National Railways lost $1.06 to $86.84.
In other corporate developments, regulatory filings show that investor Prem Watsa now has a 9.9 per cent stake in BlackBerry maker Research in Motion Ltd. (TSX:RIM). Watsa is the CEO of insurer Fairfax Financial Holdings Ltd. (TSX:FFH). He had earlier reported a 5.12 per cent holding in RIM. Watsa’s stake was valued at about $356.2 million, as of Friday's closing on the TSX. RIM added 10 cents to $6.97.
McDonald's Corp. says it net income slipped four per cent in the second quarter as a result of unfavourable foreign currency exchange rates. Revenue fell short of Wall Street expectations as the fast-food chain cited a slowing global economy.
The world’s biggest hamburger chain earned US$1.35 billion, or $1.32 per share, missing estimates by six cents a share and its shares were down $2.64 to US$88.94.
An independent arbitration panel has ordered utility TransAlta to rebuild units at its Sundance coal-fired power plant that are at the centre of dispute with TransCanada Corp., with which it had a power purchase agreement. Last year, TransAlta said the units at the Calgary facility could not be repaired economically and must be shut down. But TransCanada (TSX:TRP) argued TransAlta (TSX:TA) had failed to adequately prove that the units could not be repaired economically. TransAlta shares fell 77 cents to C$16.74 while TransCanada was off 10 cents to C$44.21.