The S&P/TSX composite index ended down 151.89 points at 14,929.37 as worries spread. The Canadian dollar also lost ground, dropping 0.1 of a U.S. cent to 79.89 cents.
Traders were faced with a discouraging report from the U.S. Commerce Department showing that orders for durable goods fell 1.4 per cent in February, which suggested that lower demand for commercial aircraft, cars and machinery could be a sign of further trouble to come.
Kash Pashootan, portfolio manager at Ottawa-based First Avenue Advisory, said that after five years of returning gains above historical averages, stock markets could be headed for a bumpy ride.
"I think that we could potentially be setting the stage for a correction and greater volatility as we head into the summer months," Pashootan said.
"We're seeing the hangover effect of having the market appreciate for five years straight."
Investors are taking a cautious approach as they await earnings data that will indicate how much the stronger U.S. dollar is hurting the bottom lines at American multinational companies. Traders are also looking for more clarity from the U.S. Federal Reserve on when interest rates are going to rise.
"You're not going to see the market set new highs from here unless it sees its next growth catalyst," Pashootan said.
The Dow Jones industrial average plunged 292.60 points to 17,718.54, while broad weakness in technology and biotech stocks dragged the Nasdaq 118.21 points lower to 4,876.52. The S&P 500 index fell 30.45 points to 2,061.05.
In commodities, crude oil settled at its highest level in more than two weeks, as political uncertainty in Yemen added pressure to supply concerns. The May crude contract moved ahead $1.70 to close at $49.21 a barrel as the TSX energy sector rose 0.7 per cent, making it the sole advancer.
April gold bullion was up $5.60 at US$1,197 an ounce.
The TSX metals and mining sector was the biggest decliner, slumping 3.2 per cent.
Shares of Kraft Foods Group were up more than 35 per cent following a friendly takeover offer by H.J. Heinz Co. Under the deal, Kraft shareholders will own 49 per cent of the new Kraft Heinz Co. Its shares gained $21.85 to US$83.17.
Quebecor Inc.'s (TSX:QBR.B) shares rose 34 cents to $33.68 after the Competition Bureau gave Postmedia (TSX:PNC.B, TSX:PNC.A) approval to buy Quebecor's chain of Sun Media English-language newspapers and digital properties.
Bank of Canada governor Stephen Poloz will speak at the Chamber of Commerce in the U.K. on Thursday where he may offer some insight into the impact of weak oil prices on the domestic economy and the timing of another interest rate move.