The S&P/TSX Composite Index lost 491.75 points, closing at 11,670.42 points, down 4.04 percent.
The Toronto Stock Exchange had already fallen six percent last week before ratings agency Standard & Poor's downgraded its AAA credit rating of US sovereign debt to AA+ with a negative outlook after months of political wrangling in Washington over the country's ballooning budget deficits.
World markets plummeted on deepening concerns over the sluggish pace of growth and the ability of governments to repay their sovereign debts.
Although Canada is forecast to return to balanced budgets by mid-decade, its fortunes are closely tied to the United States, its biggest trading partner.
On Monday, US President Barack Obama sought to reassure and reiterate his push for a tax hike on America's wealthiest to cut the US deficit in his first public comments since the ratings downgrade.
The formula was a failed part of an Obama push for a "grand bargain" during the fierce debate over raising the US government's borrowing authority that wrapped up last week.
Republicans adamantly oppose any tax increases and Obama's Democratic allies have balked at any cuts to Medicare or other social benefits programs.
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