The Canadian dollar fell by more than a cent Thursday on disappointment that the European Central Bank has no plans for large-scale government bond purchases, to help drive down the borrowing costs of deeply-indebted eurozone members.
The loonie closed down 1.19 cents at 97.79 cents US.
Markets also dropped ahead of a crucial summit of European Union leaders in Brussels Friday which is aiming to find a convincing solution to the European debt crisis.
The S&P/TSX composite index tumbled 196.94 points, or 1.6 per cent, to 11,951.79.
In New York, the Dow Jones industrials were off 198.67 points, or 1.63 per cent, at 11,997.70, the Nasdaq composite index dropping 52.83 points, or 1.99 per cent, t0 2,596.38 and the S&P 500 index stepping back 26.66 points, or 2.11 per cent, at 1,234.35.
"People are very nervous that Europe will yet again fail to adequately address the sovereign debt crisis," says David Kelly, chief market strategist for JP Morgan Funds in New York.
Traders had been hoping for a bond-purchase program, but the ECB has been vocal in maintaining it does not want to be seen as the lender of last resort.
"The ECB doesn't want to fall into the trap where they are just always expected to come to the rescue," said Gareth Watson, vice-president investment management and research at Richardson GMP Ltd.
"This is just kind of tough love and unfortunately tough love does not work out so well in the marketplace."
The January crude contract on the New York Mercantile Exchange closed down $2.15 to $98.34 US a barrel and February gold dropped $31.40 to $1,713.40 US an ounce.
European bourses also shed early gains with London's FTSE 100 closing down 1.14 per cent, Frankfurt's DAX declining two per cent and the Paris CAC 40 dropping 2.53 per cent.
With files from The Canadian Press
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