The S&P/TSX composite index was down 70.33 points at 12,470.44, led by a loss of almost three per cent in the gold sector, while the TSX Venture Exchange eased 13.67 points to 1,226.17.
The Canadian dollar lost 0.29 of a cent to 101.21 cents US.
New York markets also closed in the red after the latest minutes from the U.S. Federal Reserve’s latest policy meeting showed that policymakers expressed broad support for the Fed’s plan to buy bonds to support the U.S. economy.
But there was a split among its members over how long to continue the bond purchases. Some of its 12 voting members thought they would continue through this year, while others thought they should be slowed or stopped before the end of 2013.
Those governors were concerned that the continued bond purchases, known as quantitative easing, would destabilize the economy.
"Given the minutes, it seems that the odds don’t favour QE3 lasting into 2014, let alone making it all the way to the end of this year," said BMO Capital Markets senior economist Michael Gregory.
The Dow Jones industrials closed down 21.19 points to 13,391.36.
The Nasdaq composite index slipped 11.69 points to 3,100.57 and the S&P 500 was down 3.05 points to 1,459.37.
Indexes had been largely little changed until the release of the Fed minutes mid-afternoon, holding onto solid gains racked up in a relief rally Wednesday sparked by a last-minute deal to avert big tax hikes and spending cuts in the United States.
But there had been little enthusiasm to extend Wednesday's advances as the deal between the White House and Congress left unresolved several budget measures, mainly government spending cuts.
A last-minute deal by U.S. lawmakers late Tuesday triggered a global market rally on Wednesday even while traders worried that U.S. budget talks could pose a threat to risk appetite for months.
For one thing, while the New Year’s Eve deal settled tax rates it only postponed automatic spending cuts to defence and domestic programs for two months. And it didn’t include any significant deficit-cutting agreement, meaning the country still doesn’t have a long-term plan on how to curb spending.
On top of that, the U.S. government also faces what are likely to be tough negotiations over raising the country’s debt limit in early March.
Indexes had found early buoyancy from positive jobs data ahead of Friday's non-farm payrolls report for December.
Payroll firm ADP reported that the U.S. private sector created 215,000 jobs last month. Economists forecast that Friday's government report would show the American economy added 150,000 jobs in December.
Other data showed that more Americans sought unemployment benefits last week, though the winter holidays likely distorted the data for the second straight week.
The U.S. Labour Department says weekly applications rose by 10,000 to a seasonally adjusted 372,000. The previous week’s total also was revised higher.
Worries about further political wrangling pushed the U.S. dollar higher against many currencies, helping to depress some commodity prices, which also racked up solid gains Wednesday.
That is because a stronger greenback makes it more expensive for holders of other currencies to buy oil and metals, which are dollar-denominated.
February bullion lost $14.20 to US$1,674.60 an ounce on the New York Mercantile Exchange, pushing the gold sector down about 3.5 per cent. Goldcorp Inc. (TSX:G) faded $1.73 to C$35.22 while Iamgold Corp. (TSX:IMG) lost 63 cents to $11.
The base metals sector was off 1.08 per cent with March copper down two cents at US$3.72 a pound. Thompson Creek Metals (TSX:TCM) fell 23 cents to C$4.07 while Taseko Mines (TSX:TKO) slipped 11 cents to $3.07.
The consumer staples sector declined 0.76 per cent with drugstore chain Jean Coutu Group (TSX:PJC.A) down 26 cents to $14.50.
Tech stocks also stalled as Research In Motion Ltd. (TSX:RIM) moved down 22 cents to $11.35.
The energy sector was slightly higher as the February crude contract shed 20 cents to US$92.92 a barrel. Canadian Natural Resources (TSX:CNQ) gained 33 cents to C$29.54 while Talisman Energy (TSX:TLM) climbed 16 cents to $11.66.
Meanwhile, U.S. retailers reported weak sales as shoppers held out for deep discounts.
Target’s December sales were slightly below expectations. Revenue at stores open at least a year were flat. Analysts had expected an increase of 0.8 per cent.
Wet Seal comparable store revenue dropped 9.7 per cent for the month and Bebe Stores said revenue from sales open at least a year fell 10.5 per cent in the second quarter.
Revenue in stores open at least one year rose 4.1 in December at Macy’s. But the figure grew less than the company expected during the combined two-month November and December period, the key holiday shopping months, and Macy’s lowered its fourth-quarter guidance.