Toronto’s S&P/TSX index was down 209 points or 1.4 per cent at 14,644 at mid-afternoon.
The Dow fell 290 points, or 1.6 per cent, to 17,707 and the S&P 500 lost 29 points to 2,049. The Nasdaq declined by 71 points to 4,821.
Meanwhile, the Canadian dollar was trading at 78.91 US cents as the U.S. currency gained strength against many currencies.
The pessimism was based on worries over when the U.S. Federal Reserve would move to raise interest rates.
The Fed’s powerful open market committee meets to set interest rates next week amid a buoyant U.S. economy that grew 2.2 per cent in the final quarter of 2014 and a strong pace of job creation.
Those good signs for the U.S. economy signal to investors that the Fed might move earlier than anticipated to raise rates, despite assurances from Fed chair Janet Yellen that she could be patient on rate hikes.
"It's all about the messaging," said Brian Belski, chief investment strategist at BMO Capital Markets.
A 'big sea change'
"The (Fed) has declared they're going to be data dependent and I think what's happening is they're worried about the potential of the reaction of the stock market. The prevailing trend in the last 15 years has been lower rates, quantitative easing, a lower U.S dollar — it's a pretty big sea change."
Adding to the worry was a comment by Dallas Federal Reserve Bank president Richard Fisher that policymakers should move sooner and slower on rates rather than later and faster.
The U.S. dollar moved up against most currencies, including the euro and the Canadian dollar.
The loonie was pressured by the perception that Canadian rates could move lower, while U.S. rates get set to rise.
It also bore the impact of lower energy prices, with West Texas Intermediate crude oil down $1.42 to $48.58 US a barrel.
Oil fell in anticipation of the U.S. energy data release on Thursday, which could show increased stockpiles of crude.
The Canadian energy sector and mining sector were both in decline on the Toronto market.
The financial sector followed, on perception that banks could be hurt by the downturn at Canadian energy companies.
Also weighing on markets were the ongoing bailout talks between Greece and its European creditors, which seem to be making little progress.Suggest a correction