The Toronto Stock Exchange's S&P/TSX composite index ended down 146.98 points, or 0.7%, at 21,058.18, its lowest closing level since Jan. 5.
"The non-stop inflation headlines, talk about interest rates have scared the market," said Barry Schwartz, a portfolio manager at Baskin Financial Services.
Data on Wednesday showed that Canadian inflation climbed in December to a 30-year high.
Investors have raised bets on the Bank of Canada hiking interest rates at a policy announcement next week and are also concerned the Federal Reserve could become aggressive in controlling inflation.
The TSX gained 22% in 2021, its best yearly performance since 2009, supported by massive stimulus, vaccine rollouts and hopes of global economic recovery.
"The markets are deciding that the last few years people have made way too much money and it is time to give some of that back," Schwartz said.
Broad-based gains included a 2.2% decline for consumer discretionary shares, while the basic materials group, which includes precious and base metals miners and fertilizer companies, ended 1.8% lower.
Energy was down 0.7% as an uptick in U.S. crude inventories arrested the recent move higher in oil prices. U.S. crude oil futures settled 0.1% lower at $86.90 a barrel.
Heavily weighted financials fell 0.4%.
Among 11 major sectors, utilities was the only one to end higher, gaining 0.2%.
(Reporting by Fergal Smith; Additional reporting by Amal S in Bengaluru; editing by Jonathan Oatis)
By Fergal Smith
