However, markets were well off earlier lows as the S&P/TSX composite index dropped 40.34 points to 13,694.94.
The Canadian dollar advanced 0.22 of a cent to 89.78 cents US as November gross domestic product rose 0.2 per cent, in line with forecasts.
New York's Dow industrials dropped 149.76 points to 15,698.85, the Nasdaq slipped 19.25 points to 4,103.88 and the S&P 500 index lost 11.6 points to 1,782.59.
Data showed that inflation in the eurozone fell to 0.7 per cent in the 12 months to January from 0.8 per cent the previous month.
The data raised worries that the region could slip into a situation where prices are actually falling. Such deflation can hurt an economy as consumers delay purchases and businesses postpone investment.
The deflation concerns added to emerging market currency worries that have buffeted markets this past week.
The TSX is up 0.53 per cent for the month and the Dow industrials is down 5.3 cent. But analysts suggested that a reason for the decline is that investors simply wanted to cash in on a huge rally last year that left the Dow up well over 20 per cent.
"This is more like taking profits," said Sid Mokhtari, a technical analyst at CIBC World Markets, noting that the U.S. market has only fallen four per cent this month peak to trough.
"Internals of the market are still OK," he said. "We don’t see too many damaged profiles to the market internals, which is generally a good sign."
Meanwhile, TransCanada’s (TSX:TRP) shares gained 59 cents to $48.42 after an environmental report from the U.S. State Department said the company’s controversial Keystone XL pipeline is unlikely to significantly affect the rate of extraction in the Alberta oil sands. The report stops short of recommending approval of th pipeline but gives President Barack Obama political cover if he chooses to endorse the pipeline in spite of opposition.
TSX losses were paced by a 1.65 per cent fall in the base metals sector as March copper in New York lost three cents to US$3.19 a pound.
Uranium miner Cameco (TSX:CCO) is selling its share of the Bruce Power nuclear partnership in southwestern Ontario to Borealis Infrastructure for $450 million. Cameco shares were down 91 cents to $23.67.
Financials also weighed, down 0.93 per cent.
The gold sector slipped about 0.4 per cent as gold gave back $2.70 to US$1,239.80 an ounce.
The industrials group was slightly lower after Canadian National Railway (TSX:CNR) missed quarterly earnings estimates by a penny a share as results were impacted by tough winter conditions. CN shares gained 27 cents to $59.61 as the railway upped its quarterly dividend by 16 per cent to 25 cents and RBC Capital Markets raised its rating to outperform.
Meanwhile, CN also said that 3,000 unionized train conductors, trainpersons, yardpersons and traffic co-ordinators failed to ratify a tentative contract that was reached in October.
The energy sector rose 0.25 per cent as March crude lost 74 cents to US$97.49 a barrel.
In the U.S., Amazon stock fell 11 per cent as the retailer handed in results that missed earnings and revenue forecasts.