The S&P/TSX composite was down 78.68 points at 12,747.87, while the TSX Venture Exchange dipped 2.99 of a point to 1,102.98.
The Canadian dollar gained 0.11 of a cent to 97.63 cents U.S.
After a failed plan to tax bank savings accounts and raise 5.8 billion euros, Cyprus has returned to the drawing board to iron out a "Plan B." The small Mediterranean island has four days to reach an agreement designed to raise enough money to avoid bankruptcy.
The European Central Bank warned Thursday it will pull the plug on the country's banks at the start of next week if no solution is found.
On Wall Street, the Cyprus effect was combined with a surprise drop in sales at Oracle during its fiscal third quarter, which yanked down technology stocks and knocked the wind out of a climb that had pushed the Dow to new record highs just a week ago.
The Dow Jones industrials dropped 90.24 points to 14,421.49. The Nasdaq was down 31.59 points at 3,222.60 and the S&P 500 index slid 12.91 points to 1,545.80.
"You've also got the U.S. market that has come so far so quickly," said Paul Taylor, chief investment officer, BMO Harris Private Banking.
"I think it's critically important that we see some outcome that allows for a solution to Cyprus' debt situation, but doesn't put the eurozone's banking system at risk."
In commodities, copper continued its pullback on uncertainty over European demand. The May contract lost 0.12 of a cent to US$3.435 to pound. The TSX base metals sector dropped one per cent.
The May crude contract on the New York Mercantile Exchange fell $1.05 to settle at US$92.45 a barrel, as energy stocks fell 0.7 per cent.
Gold stocks led the gains, as April bullion rose $6.30 to US$1,613.80 an ounce.
TSX financials were 0.8 lower as Cyprus concerns spread to international banking stocks.
Also, TD Canada Trust (TSX:TD) says a "targeted" cyber attack caused its banking website and mobile banking service to go down for several hours on Thursday, though it says no personal information on its clients was obtained. TD shares fell 61 cents $83.67.
In economic data, Statistics Canada said that retail sales rose one per cent in January to $38.9 billion, on higher sales at motor vehicle and parts dealers
The U.S. Labour Department reported that applications for unemployment assistance rose 2,000 in the latest weekly reporting period to a seasonally adjusted 336,000, which is better than most had expected.
Economists rely more on the four-week average, and that number actually fell 7,500 to 339,750, the smallest number of applications since February 2008, several months before a U.S.-centred financial crisis sparked a global recession.
Home sales rose in February to a fresh three-year high, according to the National Association of Realtors. It is the latest signal that the housing recovery is solidifying.
In corporate developments, Lululemon Athletica Inc. (TSX:LLL) posted a US$109-million profit in the fourth quarter, coming in slightly ahead of analyst estimates. But the company also said that the recall of its black Luon pants earlier this week will cut into sales and profit — pushing its outlook for the current quarter below forecasts.
The company expects to lose between $12 million and $17 million of revenue in the first quarter because of the recall and earnings will be reduced by 11 to 12 cents per share. Lululemon shares were 89 cents higher to $66.26.
Shares of Yellow Media Group (TSX:Y) were lower after it said its long-time chief executive Marc Tellier would be leaving by this summer but would remain to assist with a transition period. The shares were down 27 cents to $10.20.
Harry Winston Diamond Corp. (TSX:HW) posted a gain after it said it has received all the regulatory approvals required for the sale of its jewelry and watch division to the Swatch Group. Shares were down a penny to $17.11.