The S&P/TSX composite index tumbled 123.13 points to 11,886.65 and the TSX Venture Exchange gave back 11.19 points to 1,217.96.
Falling prices for oil and copper helped push the Canadian dollar down 0.28 of a cent at 100.78 cents US.
U.S. markets were also lower as another batch of positive economic data served to raise uncertainty over whether Fed chairman Ben Bernanke would use a much-anticipated speech Friday to hint at further stimulus measures.
American retailers reported strong sales gains for August. Target, Costco Wholesale and Limited Brands all reported results that beat estimates. And the U.S. Commerce Department reported that consumer spending rose 0.4 per cent in July, the best showing in five months.
The Dow Jones industrials dropped 106.77 points to 13,000.71. The Nasdaq composite index declined 32.48 points to 3,048.71 and the S&P 500 index was off 11.01 points at 1,399.48.
Thursday's positive data followed the release of the Fed's latest regional survey Wednesday, which showed the pace of economic growth expanding. Another report Wednesday showed the U.S. economy grew faster than earlier reported in the April-June quarter, at a 1.7 per cent annual pace.
The TSX found very slight support from the financial sector in the wake of positive earnings reports from Royal Bank (TSX:RY), TD Bank (TSX:TD) and CIBC (TSX:CM).
Royal Bank’s earnings grew to $2.24 billion or $1.47 per share, partly on strength in its Canadian consumer banking operations, from $1.29 billion a year ago. Excluding certain items, the bank earned $1.31 a share in the quarter against analyst estimates of $1.18. RBC also raised its quarterly dividend by five per cent to 60 cents per share and its stock rose 36 cents to US$54.96.
TD Bank’s quarterly net income rose to $1.7 billion, or $1.78 per share, from $1.49 billion a year ago. After adjustments, the bank’s net income was $1.82 billion or $1.91 per diluted share, seven cents better than estimates. TD also upped its dividend, which will rise five cents to 77 cents, but its stock lost 87 cents to $80.65.
CIBC shares also backed off, down $1.03 at $75.35 despite a big increase in net income in the quarter ended July 31 to $841 million from $591 million for the same period last year. Excluding one-time items, the bank earned $2.06 a share, a dime better than forecast. CIBC also announced a quarterly dividend increase of four cents a share.
National Bank (TSX:NA) is scheduled to report its results after markets close and its shares declined 81 cents to $71.12.
Bank of Montreal (TSX:BMO) and Scotiabank (TSX:BNS) both handed in earnings Tuesday that also beat expectations.
In total, Canada's five biggest banks racked up $7.8 billion in profit in the third quarter, up 45 per cent from a year ago.
And Scotiabank announced after the market close Wednesday that it had reached an agreement to buy ING Bank of Canada from Netherlands-based parent ING Group for $3.13 billion in cash. Scotiabank also announced a public offering of 29 million common shares at $52 — for gross proceeds of $1.5 billion — to fund the acquisition. Its shares fell $1.30 to $52.30.
Hopes for further Fed stimulus had grown since the release of minutes from the Fed's last interest rate meeting Aug. 1 which showed a growing number of members wanting to inject another round of stimulus into a weakening economy.
But economic data released since then, including better than expected job creation in July, rising retail sales and a recovering housing sector, actually point to a strengthening economy, meaning the Fed could find it hard to justify more easing, analysts say.
"The only reason why he would want to it is to be pre-emptive with regards to something like the problems globally or the U.S. fiscal cliff," said Chris Kuflik, wealth adviser at ScotiaMcLeod in Montreal, referring to a slate of tax hikes and spending cuts set to take place at the beginning of 2013, which could weigh heavily on growth and even push the U.S. back into recession.
"As for predicting what he will say Friday, and what he will do, I think at this point it’s really a flip of the coin. Because data is coming in OK but you still have these big problems on the horizon."
Elsewhere on the TSX, base metal stocks led decliners, down almost three per cent as December copper lost early momentum following four days of losses and closed two cents lower at US$3.45 a pound. Major Drilling Group International (TSX:MDI) tumbled $1.47 or 13.69 per cent to C$9.27, while Teck Resources (TSX:TCK.B) fell $1.22 to $27.27.
The energy sector was down about 1.5 per cent with the October crude contract down 87 cents at US$94.62 a barrel. Suncor Energy (TSX:SU) fell 41 cents to C$30.70 while Canadian Natural Resources (TSX:CNQ) lost 50 cents to $29.87.
The gold sector was off about 0.5 per cent as bullion edged $5.90 lower to US$1,657.10 an ounce. Iamgold Corp. (TSX:IMG) was down 23 cents to C$12.67.
Equally important as what the Fed may do is the next interest rate announcement by the European Central Bank on Sept. 6. Gains on markets in August have also been anchored in hopes that the ECB will take steps to control high borrowing costs that have bedevilled the weakest members of the eurozone, including Spain.