The S&P/TSX composite index plunged 100.71 points to 15,114.48, with nearly all sectors lower, led by declines in gold, materials and energy stocks.
The Canadian dollar was up 0.11 of a cent at 93.92 cents US.
The Lisbon stock exchange fell sharply as the Espirito Santo group of companies, which includes Portugal's largest bank, said it was looking into major accounting issues. The news rattled investors in Portugal, which was one of the major casualties of the eurozone debt crisis. The country had only emerged from a three-year international bailout program in May.
"What it generally indicates is that we're not entirely out of the woods yet in Europe," said Tim Caulfield, co-lead manager at Franklin Bissett Canadian Equity Fund in Calgary.
Meanwhile, even better than expected jobs figures pointing to an improved U.S. economy couldn't lift Wall Street.
The U.S. Labor Department reported that weekly applications for unemployment aid dropped 11,000 to a seasonally adjusted 304,000 and near a seven-year low. The four-week average, a less volatile measure, dipped 3,500 to 311,500, the second-lowest level since August 2007. Applications are a proxy for layoffs, so the low readings indicate that employers were letting go of fewer workers.
The Dow Jones industrials closed down 70.54 points at 16,915.07, while the Nasdaq lost 22.83 points to 4,396.20 and the S&P 500 dropped 8.15 points to 1,968.03.
With the uncertainty in equity markets, traders flocked to the safe haven of gold, with the price of August bullion jumping $14.90 to US$1,339.20 an ounce.
"What we're seeing is a natural flight to safety," said Caulfield. "Gold itself is a go-to commodity in this type of environment."
The rising price of bullion didn't translate to gold stocks, with many issues sharply lower in heavy trading. Kinross Gold Corp. (TSX:K), for example, fell 11 cents or 2.37 per cent to 4.54 on 5.1 million shares, more than double its average daily volume.
The August crude contract on the New York Mercantile Exchange climbed 64 cents to US$102.93 a barrel, while September copper was ahead two cents at US$3.27 a pound.
In corporate news, Corus Entertainment (TSX:CJR.B) reported a third-quarter net loss of $30.3 million or 36 cents per share compared with a net profit of $89.9 million or $1.07 per share in the same quarter last year. Revenues were up 14 per cent to $214 million compared with $187.1 million year-over-year. Adjusted net income was $41.6 million or 49 cents per share, missing analysts estimates of $43.17 million or 51 cents and its stock fell three per cent, or 77 cents to $24.58.
Meanwhile, Postmedia Network Canada Corp. (TSX:PNC.B) said it managed to cut its losses for the third quarter, but still faced a steep drop in advertising revenue. The owner of several newspapers and websites, including the National Post, the Vancouver Sun and the Ottawa Citizen, says it lost $20.6 million or 51 cents per diluted share for the three months ended May 31. That compared with a loss of $103.3 million or $2.56 per diluted share a year earlier when it booked an impairment charge of $93.9 million.
Postmedia is in the middle of a three-year turnaround plan, which has included closing various printing plants, laying off staff and setting up digital paywalls for its websites.
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