Fear resurfaced on Tuesday about weakness in the European banking sector, causing investors to shift money out of stocks and into perceived havens.
As stock markets fell in Europe and North America, the price of gold struck a new high, rising $8.20 (U.S.) to $1,259.30 an ounce for December delivery. That topped the previous high hit in June by $1.
Japan's yen rose to its highest level against the U.S. dollar in 15 years, while demand for 10-year U.S. Treasuries increased, pushing the yield down 10 basis points to 2.6 per cent.
Fear about European financial institutions has been re-ignited as regulators meet in in Basel, Switzerland to set new capital requirements and after a Wall Street Journal analysis concluded that Europe's recent "stress tests" of the strength of major banks understated some lenders' holdings of potentially risky government debt.
Bank stocks struggled at the front of the decline, with Wells Fargo & Co. off almost 4 per cent and Citigroup, Bank of America and JP Morgan Chase & Co. losing 2 per cent each.
Manulife Financial and Sun Life Financial dropped 2 per cent. Royal Bank, Bank of Nova Scotia, TD Bank and Bank of Montreal all shed about 1 per cent.
The Toronto exchange was partially propped up by gold producers benefiting from higher bullion prices. Iamgold, Ventana Gold and NovaGold Resources all rose by 3 per cent or more.
The S&P/TSX closed the session off a fraction of a per cent, down 42.94 to 12,101.98. In New York, major indices declined 1 per cent or more. The S&P 500 shed 12.67 points to 1,091.84. The Dow Jones industrial average lost 107.24 points to close at 10,340.69.
The price of oil decreased slightly on fears about the strength of the recovery. A barrel of oil traded down 51 cents at $74.09.
The Canadian dollar lost almost three-quarters of a cent next to the U.S. greenback, ending the day at 95.49 cents.