The S&P/TSX composite index closed down 8.48 points to 11,757.88 in low-volume trading of about 124 million shares. The TSX Venture Exchange fell 6.28 points to 1,184.36.
The Canadian dollar rose 0.26 of a cent to 99.82 cents US.
Traders turned their attention to data from overseas as the European Commission released a report showing that economic sentiment dipped, with pessimism growing in both the industrial and service sectors. There were sharp declines in Germany, France and Spain.
The report came out the same day that Spain's National Statistics Institute said its economy contracted for the third straight quarter.
In commodities, the September crude contract on the New York Mercantile Exchange ended down 35 cents to US$89.78 a barrel.
September copper moved down one cent to US$3.42 a pound.
The TSX gold sector was the biggest gainer, up 0.7 per cent, as the August gold contract rose $1.70 to close at US$1,619.70 an ounce.
Anticipated efforts from Europe to calm the region's debt crisis remain in focus as U.S. Treasury Secretary Timothy Geithner meets with economic policy makers in Europe.
"There's little question that the wind behind the markets right now is on improved optimism around the potential for the EBC to do more, to put in initial policy stimulus," said Craig Fehr, Canadian markets strategist at Edward Jones in St. Louis.
"We saw that rally start late last week and it's continuing into this week. For the first part of this week I suspect the markets will really react to any shifts in views of what will come out of the ECB's comments this week."
On Wall Street, the Dow Jones industrials fell 2.65 points to 13,073.71. The Nasdaq composite index was down 12.25 points to 2,945.84 and the S&P 500 index slid 0.67 of a point to 1,385.30.
The U.S. indexes had been creeping higher early Monday, then reversed course soon after a regional manufacturing report came in much weaker than expected. A survey of manufacturing by the Dallas branch of the Federal Reserve showed a steep drop in July.
In Canada, the banking sector is in the spotlight after Standard & Poor's Ratings Services lowered its outlook on seven Canadian banks on Friday to negative from stable.
The move, which left the banks' ratings intact but suggested they may be under some pressure in future, was made over concerns about unsustainably high home prices and consumer debt levels.
The New York debt-rating firm revised its outlook downward on Royal Bank of Canada (TSX:RY), Toronto-Dominion Bank (TSX:TD), Bank of Nova Scotia (TSX:BNS), National Bank of Canada (TSX:NA), Laurentian Bank of Canada (TSX:LB), Home Capital Group Inc. (TSX:HCG) and Central 1 Credit Union.
However, S&P maintained stable outlooks on five other Canadian banks including Canadian Imperial Bank of Commerce (TSX:CM) and Bank of Montreal (TSX:BMO).
The TSX financials were down 0.13 per cent with Bank of Montreal down 94 cents to $57.76 and Royal Bank ahead four cents to $51.75.
In corporate news, TransCanada (TSX:TRP) and ExxonMobil (NYSE:XOM) say they are conducting a public process to determine the level of customer interest in a potential new pipeline — the Alaska Pipeline Project. Shares of TransCanada rose 84 cents to $45.69.