The S&P/TSX composite index dropped 56.36 points to 12,257.18. The TSX Venture Exchange fell 20.25 points to 1,313.21.
The Canadian dollar was at 101.98 US, off 0.19 of a cent, as the safe-haven greenback lost some ground.
Traders had kept stock markets positive throughout much of the morning after U.S. consumer confidence hit its highest level in seven months in September, but comments from a member of the U.S. Federal Reserve appeared to dash the sentiment.
Bank of Philadelphia president Charles Plosser questioned the Fed's latest round of stimulus, suggesting in a speech that it wouldn't help the economy grow. That opinion seemed enough to tip the scale back towards concern.
Wall Street bore the brunt of the decline, with the Dow Jones industrials backed off 101.37 points to 13,457.55. The Nasdaq composite index slid 43.05 points to 3,117.73 and the S&P 500 index was 15.30 points lower to 1,441.59.
Caterpillar Inc., the world's largest maker of construction and mining equipment, added to the eroding sentiment. The company is lowering expectations for its profit in 2015 because of slower-than-expected growth in the global economy.
"Our view of the world right now is that we don't think the markets will be propelled forward in the next month," said Paul Vaillancourt, vice-president and chief investment officer at Canadian Wealth Management.
"We are anticipating a little bit of consolidation after a pretty good run. But having said that ... we don't think we're going to see a significant sell off."
In commodities, November crude on the New York Mercantile Exchange moved down 56 cents to close at US$91.37 a barrel. The TSX energy sector lost 1.4 per cent.
December bullion increased $1.80 to US$1,766.40 an ounce. December copper gained 2.7 cents to US$3.76 a pound.
A report from Statistics Canada said retail sales rose 0.7 per cent to $39 billion in July, more than offsetting a decline in June. The increase was largely weighted in higher sales of cars, trucks and auto parts, as well as general merchandise.
South of the border, the Conference Board said its consumer confidence index rose to 70.3, up from 61.3 in August — the highest reading since February.
And the Standard & Poor's/Case Shiller index report showed that U.S. home prices increased 1.2 per cent nationally in July compared with the same month last year. Prices also rose in July from June in all 20 cities tracked by the report. It's the third straight month in which prices rose in every city.
In Canada, Forbes & Manhattan Coal Corp. (TSX:FMC) says it's buying majority stakes in an operating coal mine and an undeveloped anthracite deposit in South Africa from Rio Tinto PLC (NYSE:RIO) for about C$52.3 million plus royalties. Its shares were ahead two cents to 67 cents.
Shares of Research In Motion (TSX:RIM) lifted 32 cents to $6.50 after the BlackBerry maker gave developers a look at the progress made in developing its new operating system, due to hit the market early next year.
In Europe, Spain is due to unveil this week a new series of cost-cutting measures and structural reforms that could pave the way for demand for financial aid from its fellow eurozone countries. But hopes that Madrid will apply for the aid were overcome by concern that it was delaying the move. Spain has been reluctant to ask since such assistance comes with strings attached.
Another key issue is whether eurozone countries will grant Greece more time to reach its deficit reduction targets. The country also needs to finalize a package of austerity measures but political leaders are struggling to compromise as popular anger increases.