The Canadian dollar sank below 80 cents US for the first time in three years on Wednesday, while the TSX found itself down nearly 560 points.
The loonie -- which hit an all time high of 110.31 cents US in late 2007 -- finished the day at 79.92 cents US, down 2.47 cents from Tuesday.
The loonie hasn't closed below 80 cents US since mid-2005.
Shaun Osborne, currency analyst TD Securities, said the Canadian dollar is weak in comparison to other major currencies.
"It's been really quite a turbulent few weeks for the Canadian dollar, we haven't seen moves like this since in the foreign exchange markets for a number of years - since the early 1970s in fact," Osborne told Â鶹´«Ã½net on Wednesday.
The dollar took a hit as oil prices also dropped dramatically, falling US$5.43 to US$66.75 a barrel.
In Toronto, the S&P/TSX composite index retreated 558.92 points to 9,236.88, following a 456-point drop yesterday.
In New York, the Dow Jones industrial average fell 514.45 points to 8,519.21 after losing 232 points on Tuesday.
In Britain, the FTSE 100 index of leading shares was down 188.84, or more than five per cent, to 4,040.89.
Germany's DAX 30 fell 4.46 per cent and the Paris CAC 40 lost 5.10 per cent.
In Asia, Japan's Nikkei 225 stock average fell for the first time in three days, closing 631.56 points down, or 6.79 per cent, to 8,674.69.
Hong Kong's Hang Seng was down 5.2 per cent, while South Korea's main index shed 5.1 per cent.
The market downturn comes as media reports in Japan said Toyota Motor Corp. will post its first decline in annual global sales in a decade.
"The credit crunch seems to be behind us, and we are shifting focus to corporate earnings and economic conditions, and clearly both are deteriorating," Alex Tang, head of research at Core Pacific-Yamaichi in Hong Kong, said Wednesday.
In the U.S., bellwether corporations such as chemical manufacturer DuPont Co., Sun Microsystems and Caterpillar Inc. added to recession fears after they downplayed their prospects for the coming months.
"The overarching theme here is that the world may be getting into a recession," BNN's Michael Kane said Wednesday in Toronto.
On Tuesday, the Bank of Canada said the global economy appears to be heading into a mild recession, led by a U.S. economy already in recession.
With files from The Associated Press
