The S&P/TSX composite index stepped back 96.16 points to 12,714.05, while the TSX Venture Exchange gave back 40.63 points to 1,131.17.
The Canadian dollar closed at a fresh seven-month low, down 0.53 of a cent at 98.3 cents US.
U.S. indexes were lower as investors also learned that several Federal Reserve policymakers continued to express concerns last month about the risks of the Fed’s efforts to boost the U.S. economy by keeping borrowing costs low through bond purchases.
Minutes of the Fed’s Jan. 29-30 policy meeting showed that some officials were worried that the continued purchases could eventually escalate inflation, unsettle financial markets or cause the Fed to absorb losses once it begins selling its investment holdings.
The Fed said it would review its current open-ended program of asset purchases totalling US$85 billion a month in Treasurys and mortgage bonds at the March meeting.
The Dow Jones industrials closed down 108.13 points to 13,927.54. The Nasdaq declined 49.19 points to 3,164.41 while the S&P 500 index was down 18.99 points at 1,511.95.
Gold stocks led TSX decliners, down about 4.25 per cent as April bullion fell beneath the key level of US$1,600 an ounce, losing $26.20 to a seven month low of US$1,578. Other technical factors were at work with analysts talking of a death cross in the market.
This event happens when a security's long-term moving average breaks above its short-term moving average or support level.
Kinross Gold Corp. (TSX:K) faded 43 cents to C$7.61 while Iamgold (TSX:IMG) lost 49 cents to $7.57.
The base metals component shed 3.26 per cent while March copper declined four cents to US$3.61 a pound. Teck Resources (TSX:TCK.B) dropped $1.06 to C$31.71 while HudBay Minerals (TSX:HBM) fell 57 cents to $10.07.
The March crude contract on the New York Mercantile Exchange was down $2.20 to US$94.46 a barrel. Oil prices were undercut by analysts' expectations for higher U.S. crude supplies when the Energy Department’s Energy Information Administration releases its weekly inventory report on Thursday. Analysts on average forecast a rise of two million barrels, according to Platts, the energy information arm of McGraw-Hill Cos.
The energy sector dipped 0.7 per cent. Canadian Natural Resources (TSX:CNQ) was down 50 cents to C$30.57.
The tech sector also weakened, down 1.36 per cent as BlackBerry (TSX:BB) lost 62 cents to $13.95.
The financial sector led advancers, up a slight 0.14 per cent ahead of the start of a series of quarterly earnings from Canada's banks next week.
"We’re looking at the majors giving us some decent earnings and dividend increases (from) Royal Bank (TSX:RY), TD Bank (TSX:TD) and maybe Scotiabank (TSX:BNS)," said Chris King, portfolio manager at Morgan, Meighen and Associates.
"And capital markets are positive so the swing things are swinging our way this quarter. And that bodes well for the next quarter."
Scotiabank (TSX:BNS) rose 86 cents to $60.01.
Markets have largely traded sideways in this month following strong gains racked up in January.
Part of the reason is the looming sequester in the U.S. That is a huge package of across the board spending cuts worth US$85 billion that are set to take effect at the end of the month unless lawmakers can agree on other cuts that would be more selective.
It would cut a big chunk out of American economic growth, a worrisome prospect for a struggling economy.
"We had a good funds flow in January and you probably got a little bit of post-move jump-in among some retail investors and/or institutional people looking to increase their weightings before the next quarter," King said.
"But I can’t help but think we might have some consolidation here and I welcome it."
There was some mixed news from the housing sector as U.S. housing starts for January came in lower than expected — at an annual rate of 890,000, down from December's read of 954,000 and below expectations of 922,000.
However, analysts pointed out that the reduction in January was driven entirely by the often volatile multiples component. Starts of single-family homes actually picked up marginally to a new four-year high.
Building permits rose 1.8 per cent at an annualized rate of 920,000 in January, up from 909,000 in December.
In other corporate news, Office Depot and OfficeMax plan to merge in an all-stock deal worth about US$1.2 billion. The move would combine the number two and three biggest office supply retailers and lead to consolidation in an industry that analysts have said for years has too many stores.
There was some confusion about the deal this morning when Office Depot reported terms of the deal in a release on its website and then removed it, before restoring it after the market opened.