The S&P/TSX composite index suffered the least, falling a mere 3.01 points to 12,385.70, while the TSX Venture Exchange was down 2.79 points to 1,177.71.
But the drop was much steeper on Wall Street where stocks began to drop after House Republicans called off a vote on tax rates and left federal budget talks in disarray 10 days before sweeping tax increases and government spending cuts take effect.
The Dow Jones industrials dropped 120.88 points to 13,190.84, the Nasdaq fell 29.38 points to 3,021.01 and the S&P 500 index was off 13.54 points at 1,430.15.
Traders are growing concerned that U.S. leaders won't reach an agreement by the year-end deadline, and the lack of a decision could trigger a recession south of the border.
Meanwhile, the Canadian dollar dropped 0.61 of a cent to 100.66 cents US, as Statistics Canada reported the country's inflation rate fell to its lowest level in more than three years. It also reported the gross domestic product grew 0.1 per cent in October.
Canada's inflation fell to 0.8 per cent in November, affected by lower gasoline prices and rebates at new-car dealerships. The drop from the October inflation rate of 1.2 per cent was bigger than the expected decline to 1.0 per cent.
Republican leaders postponed a vote on legislation that would raise taxes on wealthier Americans, bringing the country closer to the so-called "fiscal cliff."
House Speaker John Boehner had presented what he called "Plan B" while he negotiated with the White House on avoiding the sweeping tax increases and spending cuts, a combination known as the "fiscal cliff."
But Boehner scrapped a vote on the bill Thursday night after it became clear that it did not have enough support in the Republican-led House to secure passage. He called on the White House and the Democratic-led Senate to work something out.
A deal must be reached to avoid going over the so-called "fiscal cliff,'' which would involve the automatic imposition of hundreds of billions of dollars in spending cuts and tax increases that could plunge the world's largest economy back into recession and depress economies around the world.
But some of the worry about the cliff deadline could be a little exaggerated, said Gareth Watson, vice-president Investment Management and Research, Richardson GMP Ltd.
"Everyone talks about falling off the cliff and the consequences of falling off the cliff — and it's not that those consequences aren't real — I just don't feel that the impact of those consequences are going to be felt in the economy immediately," he said.
"Tax rates go up, but you don't necessarily pay all that tax at the beginning of the year."
Watson said if a resolution is reached shortly after the New Year's Day, the impact won't be severe. He's more concerned with other concerns hovering over the U.S. economy that will come to fruition in 2013.
"I think this is all a show and a facade before we get to the real nitty gritty, which is the debt ceiling," he said.
"If they can't figure that out in the New Year, then the whole U.S. government shuts down and then you get a real impact on the economy."
The Conference Board of Canada said Friday that its index of consumer confidence was down again in December, the third month in a row, dropping by 2.4 points from the previous month to 77.9. The index is based a monthly survey of consumer attitudes about a number of personal and general financial issues.
TSX energy stocks were up 0.07 per cent as the January crude contract on the New York Mercantile Exchange slid $1.47 to close at US$88.66 a barrel.
March copper was up 3.1 cents at US$3.57 a pound. February bullion added $14.20 to US$1,660.10 an ounce.
Telecom stocks were the biggest gainers, rising 0.5 per cent, with Telus Corp. (TSX:T) moving up 60 cents to $65.52.
Cogeco Cable Inc. (TSX:CCA) signed a friendly $526-million deal to buy Canadian Internet infrastructure provider Peer 1 Network Enterprises (TSX:PIX). Cogeco Cable shares were down 5.4 per cent to $2.19.
Information technology stocks lost the most ground, off 2.1 per cent, as shares of Research In Motion (TSX:RIM) fell 22 per cent. The BlackBerry maker reported its latest quarterly results late Thursday, and the company's loss on an adjusted earnings basis of US$114 million, or 22 cents per diluted share, was 10 cents above the consensus estimate of 32 cents per adjusted share on revenue of $2.6 billion.
But analysts responded negatively to RIM's early details of a new plan that could see its lucrative one-plan-fits-all service fees turned into an a la carte menu, which some believe could negatively affect revenues generated by company. RIM shares closed down $3.09 to $10.86.