A crack appeared in the three-month old rally on stock markets Wednesday as commodity and financial stocks led the Toronto stock market to tumble almost 300 points while the Canadian dollar retreated more than 2 cents (U.S.).

New York markets were down sharply amid disappointing economic data while investors wondered about the sustainability of the rally which has pushed U.S. and Canadian stock indexes up more than 30 per cent this spring.

Toronto's S&P/TSX composite index fell 298.67 points, or 2.8 per cent, to 10,290.12.

Losses were led by a 5 per cent drop in the energy sector as the July crude contract on the New York Mercantile Exchange dropped $2.43 to $66.12 a barrel after the U.S. dollar strengthened and government data showed an unexpected rise in crude supplies last week.

"The areas that have been so pleasant and rewarding for us are the ones that are giving back a great deal today - what giveth also taketh," said Fred Ketchen, manager of equity trading at Scotia Capital.

"I think this is a healthy pullback, I think that we have been far more energetic on the upside than maybe the conditions have warranted."

The Canadian dollar dropped 2.29 cents to 90.22 cents - going as low as 89.94 cents - as the U.S. currency strengthened and the loonie sold off on falling oil prices.

Canada's dollar is viewed as a commodity currency in international financial markets and often swings wildly when oil prices or metals prices rise and fall.

"The move isn't really a surprise, you've got a lot of currencies that have moved a long way, especially against the U.S. dollar and there was really a bearish U.S. dollar mindset getting into the markets which really didn't seem to be based on fact," said David Watt, senior currency analyst at RBC Capital Markets.

Transportation giant Bombardier Inc. was another source of pressure on the TSX after the Montreal company said general economic weakness and order cancellations in its aerospace division led to a decline in first-quarter profit and revenue.

The TSX Venture Exchange lost 33.78 points to 1,107.96.

On Wall Street, New York's Dow Jones industrial average moved down 65.63 points to 8,675.24.

Meanwhile, the Nasdaq composite index dropped 10.88 points to 1,825.92 while the S&P 500 index gave back 12.98 points to 931.76.

U.S. markets were depressed after the ADP National Employment Report, a widely watched jobs index, showed that the U.S. private sector eliminated 532,000 jobs in May, the fewest jobs lost since November but higher than estimates of 525,000.

While the ADP report showed a slight improvement, it was "another in a list of 'less bad' economic reports," said Alan Gayle, senior investment strategist at RidgeWorth Capital Management.

"We do believe that the market expectations are shifting from simple survival to sustainability, so less bad is not good enough."

The report came out two days before the U.S. government releases its non-farm payrolls report for May, which is expected to show similar job losses. Goods producing industries cut 267,000 jobs while services cut 265,000.

Canadian employment data for last month also comes out on Friday. Economists expect that the economy shed about 42,000 jobs last month.

The Institute for Supply Management's services index said the U.S. services economy shrank in May at the slowest pace since October. However, economists had expected an even slower pace of contraction, however.

And U.S. government reported Wednesday that orders to U.S. factories rose 0.7 per cent in April, the second increase in three months. But the Commerce Department's report was below analysts' expectations of a 0.9 per cent increase.

Comments from Federal Reserve Chairman Ben Bernanke before Congress did little to reassure the market. Mr. Bernanke said the government needed to figure out a way to ease its massive debt load, and that failing to do so could undermine efforts to restore the economy to health.

The Toronto base metals sector fell 4.75 per cent while copper for July delivery lost 8.55 cents to $2.212 a pound.

The August bullion contract on the Nymex moved down $18.80 to $965.60 an ounce and the gold sector stepped back 3.5 per cent.

The financial sector was down 2.3 per cent.

All TSX sectors were negative save for a slightly higher consumer discretionary sector.