The S&P/TSX composite index closed down 59.57 points at 14,869.80, adding to a triple-digit plunge on Wednesday. The Canadian dollar rose 0.30 of a U.S. cent to 80.19 cents.
U.S. markets also finished in the red after going into a tailspin Wednesday amid reports that a Saudi-led coalition was taking military action against rebel positions in neighbouring Yemen.
Saudi Arabia has launched air strikes to oust Yemen's Houthi rebels who forced the country's embattled president, Abed Rabbo Mansour Hadi, to flee. The Saudis accuse Iran of backing the Houthis to destabilize the region and has the support of several regional powers, including Egypt and Jordan.
Although not a major oil producer itself, Yemen sits astride straits that join the Red Sea and the Suez Canal with the Arabian Sea, an important energy trade route.
"This situation, while currently playing out in Yemen, has broader implications for the region and that's why the geo-political risk is higher than just looking at Yemen in isolation and why the reaction has probably been a little bit (strong)," said Gareth Watson, vice-president, investment management and research, Richardson GMP Ltd.
"This just leads to further instability in the region and a continuation of that ongoing conflict between Saudi Arabia and Iran," Watson said, adding that while the conflict is not going to go away any time soon "we've probably seen the biggest component of the initial reaction to it."
The May oil contract closed up $2.22 at US$51.43 a barrel, the fifth consecutive increase, and the energy sector rose 0.39 per cent, one of only three sectors in positive territory along with information technology and health-care.
April gold advanced $7.80 to US$1,204.80 an ounce, but the sector was down 1.89 per cent, making it the worst performing sector in Toronto.
In New York, the Dow Jones Industrials fell 40.31 points to 17,678.23, while the Nasdaq lost 13.16 point to 4,863.36. The S&P 500 dropped 4.90 points to 2,056.15.
In economic news, Bank of Canada governor Stephen Poloz defended his surprise January decision to cut the Bank of Canada's key interest rate, telling an audience in London that it was needed to counter the stunning speed and magnitude of the drop in oil prices to levels less than half those of a year ago.
Since then they have stabilized in a range "reasonably close" to the bank's January predictions. "This made us feel increasingly comfortable with the amount of insurance we had already taken out," he said, explaining why the bank decided to hold the rate steady earlier this month. The central bank's next rate announcement comes April 15.
On the corporate earnings front, Lululemon Athletica Inc. (Nasdaq:LULU) reported a slight increase in fourth-quarter earnings compared with a year ago amid a 16 per cent spike in sales. It also offered an encouraging outlook for 2015 and its shares shot up $3.01 or 4.93 per cent to US$63.97 on the Nasdaq.