The S&P/TSX composite index dropped 54.76 points to 12,695.14, led by falling mining stocks as copper prices hit an eight month low.
The Canadian dollar dipped 0.07 of a cent at 98.36 cents US.
U.S. indexes were also in the red after the Institute for Supply Management's manufacturing index for March came in at 51.3. Economists had expected the widely-watched index to remain unchanged from February at an 18-month high of 54.2.
"This could be the first sign that the impact of U.S. government budget cuts could be impacting business/manufacturing activity," said BMO Capital Markets senior economist Jennifer Lee.
"New orders and production (think of those two components as future activity and current activity, respectively) took a sizable drop to three-and six-month lows."
But the news wasn't all bad as the manufacturing survey also showed that "employment popped up to a nine-month high, fully erasing February’s decline."
The Dow Jones industrial average declined 5.69 points to 14,572.85, the Nasdaq composite index dropped 28.35 points to 3,239.17 and the S&P 500 index points declined 7.02 points to 1,562.17 after the index hit a record high on Friday.
Other data showed that U.S. construction spending rose 1.2 per cent in February compared with January, a month that had seen construction activity drop 2.1 per cent. Spending rose to a seasonally adjusted annual rate of US$885.1 billion, 7.9 per cent higher than a year ago.
Meanwhile, the China Federation of Logistics and Purchasing said Monday that the country's manufacturing picked up in March in a potentially positive sign for the world’s second-largest economy.
Its Purchasing Managers’ Index rose to 50.9 in March from 50.1 in February, which was the lowest reading in five months. Numbers above 50 denote expansion on a 100-point scale.
Chinese manufacturing is closely watched as an indicator of global consumer sales and demand for commodities such as copper and oil. High demand in the past has fuelled higher share prices for energy and mining stocks on the resource-intensive TSX.
However, despite the improvement in factory output, analysts said investors remained worried about a possible property bubble, inflation and what policies the new Chinese government might have in store.
"Better than expected (Chinese) data six months ago would have been music to the market’s ears," said Craig Fehr, Canadian markets specialist at Edward Jones in St. Louis.
"I think right now investors are weighing any better than expected data against the potential for that to heat up property values and thus put (monetary) policy against growth in the near term."
The base metals component fell 1.68 per cent as May copper slipped three cents to an eight-month low of US$3.37 a pound. Taseko Mines (TSX:TKO) moved down eight cents to C$2.75 while Lundin Mining (TSX:LUN) lost 16 cents to $4.28.
Railway stocks fell alongside miners with Canadian Pacific Railway (TSX:CP) down $3.54 to $129.
The gold sector lost about 1.1 per cent even as June bullion gained $5.20 to US$1,600.90 an ounce. Barrick Gold Corp. (TSX:ABX) faded 36 cents to C$29.48.
Tech stocks were mainly lower with CGI Group (TSX:GIB.A) down 74 cents to $26.87 while smartphone maker BlackBerry (TSX:BB) gained 26 cents to $15.35.
The energy sector shed early gains to end the session flat as the May crude contract on the New York Mercantile Exchange closed down 16 cents to US$97.07 a barrel. But Cenovus Energy (TSX:CVE) was up 26 cents at C$31.72.
Elsewhere on the market, shares in Molson Coors (NYSE:TAP) (TSX:TPX.B) gained $2.97 or 6.07 per cent to US$51.90 in New York after Goldman Sachs upgraded the brewer to a buy rating from neutral.
The TSX started the second-quarter trading period up a slight 2.5 per cent year to date, down from highs of mid-March when the market was ahead about 3.5 per cent, reflecting a stubbornly slow global economic recovery.
In contrast, a stream of positive economic indicators, including a resurgent housing sector and continued stimulus measures from the U.S. Federal Reserve, helped power the Dow Jones industrials to a string of record-high closes, leaving the blue chip index up almost 11.25 per cent year to date.
Evidence that growth is continuing have kept stocks on a largely upward trajectory, leaving investors waiting for dips to add to their holdings.
"I'd love to have some sort of a pullback here because I’d think it’s an opportunity," said Scott Wren, an equity strategist at Wells Fargo Advisors in New York.
"But it doesn’t feel like we’re going to have one in the near term."
The TSX Venture Exchange lost 9.44 points to 1,089.56.