The S&P/TSX composite index dropped 27.55 points to 15,187.71 as data showed that service industries in the world's second-biggest economy grew at the slowest rate since November 2005. The HSBC index of China service businesses activity based on a survey of 400 companies fell to 50.0 in July from 53.1 in the previous month.
The Canadian dollar was down 0.28 of a cent to 91.24 cents US.
Losses were more severe in New York where a selloff that began last week resumed Tuesday despite readings on the U.S. non-manufacturing sector and factory orders beat forecasts but failed to encourage buyers.
The Dow Jones industrials tumbled 139.81 points to 16,429.47, the Nasdaq fell 31.05 points to 4,352.84 and the S&P 500 index was down 18.78 points to 1,920.21.
The U.S. Institute for Supply Management’s nonmanufacturing index climbed to 58.7 in July from 56 in June, versus the 56.5 gain that economists had expected.
June factory orders climbed 1.1 per cent, much better than the 0.6 per cent rise that was expected.
The lacklustre showing added to sharp losses on the TSX and N.Y. markets last week when the Toronto market lost 1.55 per cent and the Dow industrials slid 2.75 per cent. Analysts have said there hasn't been one particular reason for the weakness.
Geopolitical concerns have been cited as one reason — Tuesday's slide gained momentum mid-afternoon after The Financial Times reported increasing numbers of Russian troops and vehicles on the country's border with Ukraine. The massing of troops has raised the possibility of an invasion as the Ukraine army advances against pro-Russian separatists
Traders also fretted over the prospect of the Federal Reserve hiking interest rates sooner than thought after second quarter economic growth came in much better than expected. Those worries were front and centre again Tuesday in the wake of the ISM and factory orders data.
But analysts also point to the fact that the rally on stock markets has been going practically without interruption for over five years and that a correction could be in the cards.
"It’s a pause for investors to take another hard look at what things look like going forward," said Stephen Carlin, vice-president and senior portfolio manager at CIBC Asset Management.
"We don’t see this as a longer-term trend in the prospects for the market going forward."
The base metals sector lost 0.9 per cent as September copper slipped four cents to US$3.20 a pound.
September crude declined 91 cents to US$97.38 a barrel and the energy sector eased 0.68 per cent.
The gold sector rose 0.19 per cent while December bullion faded $3.60 to US$1,285.30 an ounce.
The consumer staples sector was the biggest percentage gainer, up 0.87 per cent with Saputo shares (TSX:SAP) up $1.38 to $68.95 after Canada’s largest cheese producer reported that quarterly net income rose to $145.3 million or 73 cents a share, up from $136.7 million, or 69 cents, a year ago. The company also said that it is boosting its quarterly dividend and splitting its stock two-for-one through a special payment to shareholders.
A massive TSX decliner was Vancouver-based mining company Imperial Metals (TSX:III). Its stock plunged $6.82 or 40.6 per cent to $9.98 after a tailings pond in central B.C. was breached over the weekend. Imperial says the situation has stabilized and added the cause of the breach is unknown.