Indexes closed well above the worst levels of the session but the S&P/TSX composite index still tumbled 166.8 points to 13,869.88 as the TSX fell further into correction territory, losing 12 per cent since the record highs of last month and close to shedding all its gains for the year.
U.S. markets moved closer to a formal correction, defined as a plunge of at least 10 per cent from recent highs. The Dow Jones industrials fell 173.45 points to 16,141.74, the Nasdaq lost 11.85 points to 4,215.32 and the S&P 500 index declined 15.21 points to 1,862.49.
Worries about the economy deepened as U.S. retail sales for September came in weaker than expected, falling 0.3 per cent amid broad weakness against the 0.1 per cent decline that economists had expected.
"Overall, this is a setback for consumer spending and suggests downside risk for Q3 growth," said BMO Capital Markets senior economist Jennifer lee.
The Canadian dollar edged up 0.38 of a cent to 88.83 cents US as the greenback weakened following release of the retail data.
Traders were unmoved by data in the Federal Reserve’s latest economic survey showing that most regions across the U.S. saw modest or moderate economic growth in September.
Markets have headed steadily downward since last month but the sell-off gained momentum last week as a string of disappointing German economic data raised concerns that Europe's biggest economy could be headed back into recession. Also, the International Monetary Fund again revised downward its global growth projections.
Growth concerns have particularly hammered oil prices, which have fallen to 2 1/2 year lows after the International Energy Agency slashed its oil-demand growth forecast for this year by more than a fifth. On Wednesday, November crude in New York was six cents lower at US$81.78 a barrel.
The TSX energy sector has been the major weight on the Toronto market, plunging 19 per cent over the last month. It was down another 0.57 per cent Wednesday.
The sell-off on markets is also taking place amid a number of other concerns, including the end this month of the Federal Reserve's latest round of quantitative easing, the program of massive bond purchases that has kept long-term rates low and fuelled a rally on stock markets over the last few years.
The state of the European economy has also depressed the euro and pushed the U.S. dollar higher. The higher greenback has helped depress commodity prices and raised concerns that it could weigh on the earnings of American multinationals.
New York indexes have yet to close in correction territory. Still, the Dow has lost almost seven per cent since Sept. 19 while the S&P 500 has fallen just eight per cent. Both indexes had been at or close to record levels and a correction has been widely expected since there hadn't been a retracement in three years.
And now that the retracement is gaining momentum, analysts caution that the sell-off likely has a way to go.
"Peak to trough, we can easily correct anywhere from eight to 13 per cent without really altering the long-term picture," said Sid Mokhtari, a market technician at CIBC World Markets.
"We’re getting closer to a good bottom. We should put things into perspective and not necessarily fear what is coming at us at this point."
The financials group was also a major weight, down 2.5 per cent amid earnings disappointments from Bank of America and U.S. lender Keycorp.
The TSX also felt added pressure from the base metals group, down another 3.5 per cent for a loss of more than 20 per cent over the last month as December copper gave back eight cents to US$3.01 a pound.
Rail stocks continued to fall alongside miners, taking the industrial group down per cent.
The gold sector was flat as bullion prices erased early losses as the flight to safety pushed December bullion up $10.50 to US$1,244.8 an ounce.