The S&P/TSX composite index fell 63.92 points to end the session at 12,289.17, with commodities-heavy sectors contributing most to the decline. The TSX Venture Exchange was off 11.35 points to 1,173.59.
And copper prices also fell, with the March contract on the Nymex dropping 5.6 cents to $ 3.66 (U.S.) a pound.
On Wall Street, the Dow Jones industrials dropped 74.73 points to 13,170.72, while the Nasdaq shed 21.65 points to 2,992.16 and the S&P 500 dropped 9.03 points to 1,419.45.
The cliff scenario involves an end-of-year deadline when automatic spending cuts and tax increases are set to take place. With economic growth already weak, the worry is that the two moves would push the U.S. back into recession, sending shockwaves around the world.
“If they could get something done prior to Christmas it would be fantastic, the problem is we know how these politicians work … and unfortunately it looks like they’re going to take this right to the wire.”
In U.S. economic data, the Commerce Department said Americans spent more on autos, electronics and building supplies in November, pushing retail sales up 0.3 per cent last month. That offset a 0.3 per cent decline in October.
And the U.S. Labor Department said fewer Americans applied for unemployment benefits last week, the fourth straight weekly decline. The seasonally-adjusted figure of 343,000 was the lowest level in two months and the second-lowest total this year.
The data on declining unemployment applications, which suggests that companies are cutting fewer jobs, comes after the Federal Reserve for the first time ever tied its interest rate policy to unemployment as it aggressively attacks joblessness in the U.S.
On the TSX, shares of Research In Motion gained more than 3.5 per cent after the company said the U.S. Immigration and Customs Enforcement agency will be launching a pilot program with its smartphones using the new operating system BlackBerry 10, likely in January. Its stock was up 49 cents to $ 13.63.
Sobeys supermarket operator Empire Company Ltd. reported a 19.5 per cent increase in fiscal second-quarter profits to $ 93.3 million or $ 1.37 per share, compared with net income of $ 78.1 million or $ 1.15 per share in the second quarter last year. Shares of the company fell $ 1.66 to $ 59.85.