The index fell for the fourth straight session, although dropping less than many other major markets as gold stocks rallied. It follows an 11 percent loss in 2015, its worst year since the global financial crisis of 2008.

"China had the big sell-off and that's kind of rolled through the rest of the markets around the world," said Colin Cieszynski, senior market analyst at CMC Markets Canada.

Weak economic data was the primary factor driving markets lower, according to Cieszynski, while the spike in Middle East tensions compounded matters.

Data revealed disappointing factory activity in China, the United States and Canada for December.

The heavily weighted financial services sector was the biggest drag on the market, falling 1.3 percent.

Royal Bank of Canada (>> Royal Bank of Canada) fell 1.5 percent to C$73.04, and Brookfield Asset Management Inc (>> Brookfield Asset Management Inc) declined 3.1 percent to C$42.31.

The Toronto Stock Exchange's S&P/TSX composite index <.GSPTSE> closed down 82.8 points, or 0.64 percent, to 12,927.15, with eight of the index's 10 main groups in negative territory.

The index hit a three-week low at 12,748.45 before paring losses.

Crude oil swung lower on the day, weighing on energy stocks. U.S. crude prices settled at $36.76 a barrel, down 0.76 percent. [O/R]

Suncor Energy Inc (>> Suncor Energy Inc.) fell 1.2 percent to C$35.28. Its top executive said it was "conceivable but highly improbable" that the company will extend a C$4.3 billion ($3.08 billion) hostile takeover bid for Canadian Oil Sands Ltd (>> Canadian Oil Sands Ltd) beyond this week's deadline.

Canadian National Railway Co (>> Canadian National Railway Company) fell 1.1 percent to C$76.47, while Alimentation Couche-Tard Inc (>> Alimentation Couche-Tard Inc) fell 2.0 percent to C$59.70.

The rally in gold stocks helped "cushion the blow," said Cieszynski.

Barrick Gold Corp (>> Barrick Gold Corp.) rose 5.6 percent to C$10.81 and Goldcorp Inc (>> Goldcorp Inc.) advanced 3.4 percent to C$16.54.

Gold futures rose 1.4 percent to $1,074.5 an ounce as investors sought a safe haven. [GOL/]

(Additional reporting by Alastair Sharp; Editing by Dan Grebler)

By Fergal Smith