The S&P/TSX composite index dropped 44.44 points to 13,643.22 after the U.S. central bank said it would trim its massive, monthly bond purchases by another US$10 billion to $65 billion.
TSX losses were limited by a rise in the gold sector as emerging market worries pushed bullion prices higher.
The Canadian dollar was down 0.18 of a cent to 89.46 cents US.
Losses were much more severe in New York on worries that further tapering could also persuade traders to take profits from a strong rally last year that was underpinned by Fed stimulus.
The Dow Jones industrials tumbled 189.77 points to 15,738.79, also pressured by disappointing guidance from aircraft maker Boeing. Its shares fell more than five per cent.
The Nasdaq composite index lost 46.53 points to 4,051.43 and the S&P 500 index was down 18.3 points to 1,774.2.
Markets have been volatile since last week after Chinese data showed a contraction in manufacturing. And currencies in countries including India, Turkey, Russia and South Africa came under pressure as investors wondered how they'll be affected by the Fed's move to reduce its monetary stimulus.
Nerves were initially soothed by the Turkish central bank’s aggressive interest rate hike to stabilize its currency, another rate hike in India and an injection of funds by China into its banking system.
The Turkish central bank move gave an initial boost to its currency. But confidence was shaken as the effect gradually faded. A surprise rate increase by South Africa’s central bank also had only a short impact.
The Fed's bond purchases over the last few years have resulted in a stream of cheap money flowing into emerging markets as the stimulus kept long-term rates low. But now, that money is exiting many emerging markets as those rates head higher.
"The additional tapering will reinforce the concerns in the market regarding an exodus of flows from the emerging markets," observed Andrew Pyle, senior wealth adviser and portfolio manager at ScotiaMcLeod in Peterborough, Ont.
The Fed had already tapered its asset purchases by $10 billion a month to $75 billion starting this month.
Meanwhile, Canadian Pacific Railway (TSX:CP) posted quarterly profit ex-items of $1.91 a share, missing estimates by two cents. Revenue rose seven per cent, also below estimates, but CP shares gained $7.37 or 4.66 per cent to $165.52 on a positive outlook for its operating ratio.
The tech sector led TSX decliners, falling 1.5 per cent after CGI Group posted quarterly earnings ex-items of $207.9 million or 65 cents, five cents lower than estimates, and CGI shares fell $1.76 or five per cent to $33.47.
Elsewhere in the sector, shares in Yahoo fell 8.6 per cent in New York after it reported that revenue dropped six per cent in the fourth quarter, the same rate of decline experienced for all of 2013.
In the financial sector, worries about growth in emerging market countries pushed bank stocks lower as Scotiabank (TSX:BNS), the most international of the big Canadian banks, shed 58 cents to $61.30 while Royal Bank (TSX:RY) gave back 78 cents to $68.76.
AGF Management Ltd. (TSX:AGF.B) dropped 78 cents, or 6.29 per cent, to $11.63 after the investment firm posted earnings that fell short of expectations amid high restructuring costs in the fourth quarter.
The energy sector fell 0.68 per cent while the March crude oil contract on the New York Mercantile Exchange dipped a nickel to US$97.36 a barrel. Canadian Natural Resources (TSX:CNQ) fell 30 cents to C$36.
The base metals index gave back 0.43 per cent as the March copper contract dipped a cent to US$3.24 a pound. Capstone Mining (TSX:CS) lost nine cents to C$2.99.
The gold sector rose about 3.3 per cent with the February bullion contract up $11.40 to US$1,262.20 an ounce. Goldcorp (TSX:G) ran ahead 98 cents to C$27.60 while Barrick Gold (TSX:ABX) gained 84 cents to $21.80.
Elsewhere on the earnings front, Facebook reported after the close that earnings per share ex-items were 31 cents, four cents a share better than forecast and its shares ran up 4.65 per cent in after-hours trading.Suggest a correction