The S&P/TSX composite index dropped 57 points to 13,278 with the market also held back by gold stocks, which gave up further ground as bullion prices continued to decline.
The Canadian dollar was up 0.12 of a cent to 89.33 cents US.
Base metal stocks fell in Canada after survey showed that China's manufacturing industry contracted in the first quarter of 2014. China is a big buyer of Canadian minerals.
U.S. PMI not as strong as hoped
The U.S. Markit purchasing managers index also fell in March to 55.5 from 57.1 in February, an indication that the U.S. economy is not picking up strength as many analysts had hoped.
The Dow Jones industrials shed lost 26 points, or 0.2 percent, to 16,276, while the S&P 500 index was 9.07 points lower at 1,857.44.
The Nasdaq was the biggest loser, down 50 points, or 1.2 percent, to 4,226.54 as investors sold-off some big-name stocks such as Facebook, Tesla, Google and Netflix. The tech-centred market had its biggest daily drop since early February.
These stocks have had a strong runup in the past year, and investors are worried that the gains are not sustainable. Facebook gave up five per cent of its stock price.
The escalation of sanctions between Russia and Canada and the EU also hurt sentiment in trading worldwide.
Data out earlier in the session showed that the preliminary version of HSBC's purchasing managers' index for China dropped to 48.1 in March from February's 48.5. It was the lowest reading since July 2013 and suggested that the slowdown in the world's second-biggest economy is deepening.
Craig Fehr, Canadian markets specialist at Edward Jones in St. Louis, said the Chinese leadership seems prepared to let the economy slow and that could cut into demand for Canadian resources.
Gold prices back off from Russian shock
"It's clear that officials in China will be far more tolerant of a little slower growth because there is a broader shift occurring where officials would like to see an economy that is far more domestic consumption based," he said.
The gold sector was the leading decliner, down 4.25 per cent as April bullion shed $24.80 to $1,311.20 US an ounce. Gold prices initially spiked in the wake of Russia's invasion of Crimea earlier this month. But they backed off as any threat of military retaliation quickly evaporated while sanctions have been aimed at specific individuals, not the main Russian economy.
The metals and mining sector gave up early gains to move down 1.75 per cent while May copper was unchanged at US$2.95 a pound. Worries about China have pushed the sector down more than six per cent this month, making that group the leading loser, while copper prices have fallen more than 7.5 per cent.
The energy sector was off 0.2 per cent as the May crude on the New York Mercantile Exchange gained 14 cents to close at $99.60 a barrel as traders waited to hear how long the Houston Shipping channel would be closed..
BlackBerry was down 42 cents to $10.19 Cdn ahead of earnings from the smartphone maker coming out on Friday. On average, investors expect the smartphone maker to post revenue of $1.1 billion and a net loss of about 57 cents a share. That is down sharply from a year ago when BlackBerry posted revenue of $2.2 billion and earnings per share of 18 cents.