The S&P/TSX was down 147.19 points or one per cent at 14,390.43 at the close of trading, with the energy sector falling by four per cent.
Oil prices were at a four-year low after Saudi Arabia announced late Monday it would cut prices to its U.S. customers.
The OPEC oil cartel meets later this month and traders had hoped the Saudis would cut oil production to make up for a glut of U.S. crude.
But Saudi production prices are low and the price cut signalled it is willing to wait out oil prices that have declined from $100 US a barrel in July to as low as $76.22 US a barrel today. It closed at $77.19, down $1.59 on the day.
Stocks in New York also fell as oil prices moved lower in the morning before bouncing upwards at mid-afternoon.
The Dow Jones industrial average was up 17.60 to 17,383.84 at the close of trading.
The Standard-and-Poor's 500 index fell 5.71 points to 2,012.19 and the Nasdaq composite was down 15.27 points to 4,623.64.
Energy stocks on U.S markets fell 2.3 per cent.
Market sentiment was also affected by fresh news of the slowdown in Europe. The European Central Bank revised its estimate for GDP growth this year to 0.8 per cent, down from 1.2 per cent.
Resource sectors registered sharp losses on the TSX amid the gloomy data from the eurozone. The base metals sector lost three per cent with December copper down five cents to $3.01 US a pound.
The gold sector was down 0.2 per cent while December gold inched up 50 cents to $1,170.3 US an ounce.
The major story of the day was losses at Scotiabank’s Caribbean operations, and the announcement of 1,500 layoffs, most of them in Canada. Scotiabank stock was down $1.30 to $67.48.
WestJet Airlines says its quarterly net income excluding losses from the sale of old aircraft surged 31 per cent to a record $85.4 million. The airline earned 66 cents per diluted share in adjusted profits, two cents short of analyst estimates. Its shares declined 85 cents to $31.18.