The S&P/TSX composite index declined 9.71 points to 12,260.94.
The declines were mainly concentrated in the energy sector as data showing higher inventories pushed crude down $1.37 to US$100.87 a barrel.
The TSX Venture Exchange dipped 11.11 points to 1,531.12.
The Canadian dollar was down 0.22 of a cent to 98.11 cents US.
U.S. markets were mixed with the Dow industrials down 13.02 points to 12,449.45. The Nasdaq gained 8.26 points to 2,710.76 while the S&P 500 added 0.4 of a point to 1,292.48.
The Fed's so-called Beige Book, a snapshot of economic conditions from across the United States, said that the final weeks of 2011 were the American economy’s strongest since it appeared to be slipping toward recession in late spring.
It said consumer spending picked up, factories made more goods, Americans stepped up travel and the auto industry enjoyed its best stretch of the year. The Fed sees modest to moderate growth but on a negative note, the Fed said the housing sector is still soft.
Recent data has tended to confirm the Fed's look at the economy late in 2011. Data released in the past week showed manufacturing expanding at a faster than expected pace while employment gains for December beat expectations, showing the economy created 200,000 jobs last month.
However, while that is reassuring, it's far below what the U.S. economy needs to sustain growth.
"We need to see 275,000 jobs a month for the next two years to get back the jobs lost during the recession (and) we're not even at the average of 275,000," said Gareth Watson, vice-president of investment management and research at Richardson GMP Ltd.
Watson said he's worried that recent signs of growth "have been driven by the American consumer leveraging up again and at some point that will run out."
Watson added that it's not just enough for the Fed to create the right monetary policy, but politicians have to work together to create mechanisms to help create jobs and assist small businesses and entrepreneurs.
"But very little will be accomplished between now and next January because you have an election but then you have a lame duck session."
At the same time, traders were cautious amid worries that Europe is edging closer to recession. Germany reported that its economy, the largest in Europe, shrank slightly at the end of last year. And the European Union cut its estimate of economic growth to its slowest pace in more than two years.
The TSX energy sector fell 1.56 per cent after the U.S. Energy Information Administration said that oil supplies rose by five million barrels last week against an expected decrease of a million barrels.
February crude contract on the New York Mercantile Exchange lost $1.37 to $100.87 barrel. Canadian Natural Resources (TSX:CNQ) lost $1.20 to $38.31.
Ivanhoe Energy Inc. (TSX:IE) subsidiary Sunwing Zitong Energy is selling its interest in production from the Zitong block gas discovery in China’s Sichuan Basin to Royal Dutch Shell for up to US$160 million. Its stock shed five cents to $1.11.
The base metals component was ahead 0.28 per cent as March copper gained three cents to US$3.55 a pound on top of a 10-cent urge on Monday. Weak trade data from China raised hopes that officials will loosen lending requirements to encourage growth but in a limited way to prevent inflaming its already sizzling property market. Traders were also encouraged by strong revenue figures and a positive outlook from resource giant Alcoa Inc.
First Quantum Minerals (TSX:FM) was down 70 cents to $22.40 while Teck Resources (TSX:TCK.B) gained 70 cents to $39.35.
The gold sector was also positive while bullion prices headed higher for a second day and February gold gained $8.10 to US$1,639.60 an ounce. Barrick Gold Corp. (TSX:ABX) advanced 52 cents to $49.74.
The industrial sector helped provide lift to the TSX.
Shares in Canadian Pacific Railway (TSX:CP) rose 63 cents to $69.30 as the Globe and Mail ran a story about former Canadian National Railways president and CEO Hunter Harrison. He said he’s optimistic about the possibility he could take the reins at CP. Harrison has been proposed as the next CEO of CP by Bill Ackman, who has bought a 14.2 per cent stake in the railway.
Financials were also supportive with National Bank (TSX:NA) ahead 37 cents to $72.33.
On the corporate front, Magna International Inc. (TSX:MG) shares gained $1.20 to $39.52 after it raised sales predictions by as much as eight per cent in 2012. The auto parts maker is looking to new markets for growth, and targets operating margins at about five per cent, an improvement over the scaled back predictions of 4.75 per cent made for 2011.
Hostess Brands Inc., the maker of Twinkies and Wonder Bread, is filing for bankruptcy protection, blaming troubles with its pension and medical benefits obligations, increased competition and tough economic conditions. The Chapter 11 filing on Wednesday comes just two years after a predecessor company emerged from bankruptcy proceedings.
The media division of Shaw Communications Inc. (TSX:SJR.B) filed an application Wednesday with its federal regulator in a bid to launch a regional all-news speciality channel. Shaw's stock dropped 10 cents to $20.48.
Viterra Inc. (TSX:VT) says its benefits from the new rules eliminating the Canadian Wheat Board's monopoly will be modest in 2012 but become more significant in following years. Its shares gained 32 cents to $11.04.