The S&P/TSX composite index backed off 145.42 points to 12,273.57 while the TSX Venture Exchange slipped 17.17 points to 1,327.81.
The Canadian dollar was up 0.03 of a cent to 102.19 cents US, off early highs as gains in metal prices evaporated.
U.S. markets were lower ahead of the release of earnings from resource giant Alcoa Inc. after the close. The Dow Jones industrials dropped 110.12 points at 13,473.53.
The Nasdaq composite index fell 47.33 points to 3,065.02 while the S&P 500 index declined 14.4 points to 1,441.48 amid a report from the IMF that downside economic risks have increased and are considerable.
It said Tuesday in a quarterly update of its World Economic Outlook that the global economy will expand 3.3 per cent this year, down from the estimate of 3.5 per cent growth it issued in July. Its forecast for growth in 2013 is 3.6 per cent, down from 3.9 per cent three months ago and 4.1 per cent in April.
The IMF added that the global economic malaise is spreading to more dynamic emerging economies such as China. China’s economy now is expected to expand 7.8 per cent this year, down from July’s eight per cent forecast.
Meanwhile, Alcoa surprised traders who are expecting the quarterly earnings season to be the worst since the economic revival in 2009.
The company beat expectations on the top and bottom lines. Earnings per share came in at three cents against expectations of a break even number. Alcoa's revenues came in at US$5.83 billion, well above the US$5.54 billion that analysts expected. Its shares were up about 0.65 per cent in after hours trading.
The company is seen as an economic bellwether as its products are used in a wide variety of industries, from auto makers to appliance manufacturers.
Earnings expectations across the board are muted for the most recent quarter.
"We do think Q3 earnings are going to be underwhelming", said Craig Fehr, Canadian markets specialist at Edward Jones in St. Louis.
"We’re likely to see maybe a year-over-year decline."
Fehr added the resource-heavy TSX is particularly vulnerable amid slowing global growth.
"The decline in commodity prices we have seen year over year is going to have an impact on earnings on the TSX, maybe even more so than we will see out of the S&P 500," added Fehr.
"We’re reaching this point now where we have a confluence of factors of global economic data that is lukewarm; we’re at a point where the rate of earnings growth is decelerating, relative to the past eight or 10 quarters which have been quite exceptional. All this boils to a market in the near term that is going go to be choppy."
Commodity prices were mixed after registering losses Monday in the wake of a pessimistic outlook from the World Bank. The organization cut its forecasts for economic expansion in East Asia, saying it expected the region to grow by 7.2 per cent in 2012, down from a projection of 7.6 per cent in May.
All TSX sectors finished the day in the read, led by a drop of about three per cent drop in the gold sector as December bullion declined $10.70 to US$1,765 an ounce. Barrick Gold Corp. (TSX:ABX) faded $1.53 to C$39.60 while Goldcorp Inc. (TSX:G) gave back $1.77 to $43.45.
The energy sector lost 0.57 per cent even as the November crude contract on the New York Mercantile Exchange rose $3.06 to US$92.39 barrel. Oil had slipped the previous three sessions but found support Tuesday, partly on supply concerns linked to the Syrian conflict. A report from Commerzbank in Frankfurt said there are supply risks since Turkey might become involved in the conflict.
Analysts also said that some North Sea oil rigs have been slow to resume production after undergoing maintenance.
Cenovus Energy (TSX:CVE) gave back 22 cents to C$34.20 while Suncor Energy (TSX:SU) closed 31 cents lower to $32.69.
The metals and mining sector gave back one per cent while December copper closed unchanged at US$3.72 a pound after falling six cents Monday. HudBay Minerals (TSX:HBM) slid 19 cents to $9.41 while Teck Resources (TSX:TCK.B) ran ahead 36 cents to C$30.46.
Research In Motion (TSX:RIM) helped take the tech sector down 1.7 per cent after research analysts at Jefferies Group reaffirmed their underperform rating for the BlackBerry maker. Analyst Peter Misek says the next generation of BlackBerrys likely won’t hit shelves until March. Some observers were anticipating a January or February release. RIM shares fell 44 cents or 5.46 per cent to $7.62.
On the economic front, fresh data showed continued strength in the Canadian housing sector. Canada Mortgage and Housing Corp. said housing starts came in at an annualized rate of 220,000 in September, much stronger than the 205,000 that economists had expected.