The S&P/TSX was off 105.15 points at 11,330.39, in low volume trading, while the TSX Venture Exchange moved down 30.39 points to 1,175.64.
The Canadian dollar was down 0.44 of a cent at 97.16 cents US.
In Europe, Cyprus became the fifth eurozone country to request financial aid following an official request from Spain.
On the TSX, the decline was spread across nearly every sector, led by information technology stocks, which dropped 3.3 per cent.
Shares of Research In Motion Ltd. (TSX:RIM) were down 7.5 per cent amid reports the BlackBerry maker was considering a plan to split itself into two. The company dismissed the suggestions and said it remains committed to turning itself around. RIM dropped 76 cents, at $9.36 — a level not seen since November 2003.
TSX energy stocks dropped 2.1 per cent as the August crude contract on the New York Mercantile Exchange ended down 55 cents to US$79.21 a barrel, continuing a slump that has brought the price down from $110 in late February.
Energy prices have been falling as traders anticipate that slower growth in China and the lingering government debt crisis in Europe will drag down global economic growth and decrease demand for energy.
The gold index was on the upside, rising 1.6 per cent, as August gold moved up $21.50 to end at US$1,588.40 an ounce, while July copper rose one cent to US$3.32 a pound.
The leaders of France, Germany, Italy and Spain have agreed to push for a growth package of up to €130 billion (US$163 billion) at a summit intended to kick-start the economy and safeguard the currency bloc.
But investors, already worried about an economic slowdown in the U.S. and China, were preparing for the European leaders to disappoint at their gathering in Brussels that begins on Thursday.
"You need leadership, which we're not getting up to this point," said Irwin Michael, portfolio manager ABC Funds.
"It's tougher, because you've got 17 countries that make up the euro, as opposed to one country when the Americans had to make that same difficult decision in September 2008 for that six month period leading to the bottom of the market."
On Monday, Spain formally asked for help for its ailing banking system but its request left many questions unanswered, including how much of the $125 billion loan package offered by other European nations it needed. The uncertainty upset markets, pushing borrowing costs higher for Spain's government. Spain's stock market plunged 3.7 per cent.
Cyprus also asked for help, but declined to publicly state how much money is it seeking from the European bailout fund, with a spokesman saying its up for negotiations in the coming days. The island nation is struggling to shore up its banks, which took heavy losses on Greek debt.
Uncertainty about debt levels in Europe also weighed on bank stocks in North America, with the TSX financials sector off 1.4 per cent, as Royal Bank (TSX:RY) dropped $1.01 to $50.95.
On Wall Street, the Dow Jones average fell 138.12 points to 12,502.66, the Nasdaq lost 56.26 points to 2,836.16 and the S&P 500 slid 21.30 points to 1,313.72.
Economists said the size of the growth package would be modest, about one per cent of the euro alliance's gross domestic product. But they said it marked a recognition by German Chancellor Angela Merkel that more government spending would be needed.
The discussions also come as leaders acknowledge that there hasn't been enough done to combat developing problems in Europe. Italian Premier Mario Monti said that there could be severe consequences for the 17 countries that use the euro and the world economy if the summit fails.
In Europe, Britain's FTSE 100 declined by 1.1 per cent to 5,450.65 points. Germany's DAX lost 2.1 per cent to 6,132.39 and France's CAC-40 fell 2.2 per cent to 3,021.64.
Earlier, in Asia, Japan's Nikkei 225 index closed down 0.4 per cent at 8,765.54 and South Korea's Kospi slid 1.4 per cent to 1,822.19. Australia's S&P/ASX 200 was down 0.9 per cent. But Hong Kong's Hang Seng rose 0.3 per cent.
In U.S. economic news, the Commerce Department said Americans bought new homes in May at the fastest pace in more than two years, adding to evidence of a slow housing recovery. Sales of new homes increased 7.6 per cent in May from April to a seasonally adjusted annual rate of 369,000. That's the best pace since April 2010, the last month that buyers could qualify for a federal home-buying tax credit.
In corporate deals, Microsoft (NASDAQ:MSFT) is paying US$1.2 billion to buy Yammer, an Internet startup that has built a social network similar to Facebook for the business world. Its shares fell 2.7 per cent or 84 cents to $29.86.