The S&P/TSX composite index fell 86.1 points to 11,042.6 on top of Thursday's 262-point plunge as worries continued over whether Greece, Portugal and Spain can successfully deal with huge deficits.
"Clearly we've entered the worry, fear camp,'' said Rob Lutts, president and chief investment office at Cabot Money Management in New York.
"It's a very fragile investor psychology today. It doesn't take much ... to send them running for the hills.''
Hopes had been high the American economy would show some job growth during January. Instead, the U.S. Labour Department's non-farm payrolls report said the economy shed another 20,000 jobs last month. On the bright side, the jobless rate moved down three-tenths of a point to 9.7 per cent.
It said the rate dropped because a survey of households found the number of employed Americans rose by 541,000. The job losses are calculated from a separate survey of employers.
"This was one of those reports where the 'negative' column was offset with the 'positive' column, leaving us to maintain our view that the U.S. labour market remains on the slow path to recovery,'' said Ian Pollick, economics strategist at TD Securities.
The American jobless report came on the heels of January employment data for Canada, which showed the addition of 43,000 new jobs in January, pushing the unemployment rate down slightly by one-tenth of a percentage point to 8.3 per cent.
However, most of these were part time and only about 1,500 full time jobs were added.
The Canadian dollar was down 0.32 of a cent to 92.9 cents.
European worries centre on whether governments can deliver the deficit cuts they have promised in the face of strong public opposition.
On Friday, Portugal's opposition parties defeated a government austerity plan and passed their own bill allowing the country's autonomous regions to rack up even more debt. That raised new questions about European countries' ability to control their swollen budget deficits, which are undermining faith in the region's euro currency. Greece and Spain are also grappling with massive budget deficits.
Nicholas Colas, chief market strategist at ConvergEx Group in New York, said the worries about European debt are exacerbated because European Central Bank head Jean-Claude Trichet has not shown that he has the situation under control.
``It's that void that concerns people,'' Colas said.
Investors worry that if regulators can't help stem problems now, they could end up snowballing and becoming an every bigger spread elsewhere, he said.
The debt crisis also prompted a rush to the perceived safety of the U.S. dollar, which in turn pressured commodity prices.
The base metals sector was down 2.81 per cent, as March copper gave back two cents to US$2.86 a pound. Teck Resources (TSX:TCK.B) lost 91 cents to $32.98 and First Quantum Minerals (TSX:FM) lost $5.41 to $66.80.
The TSX energy sector slid 2.44 per cent as oil prices continued to head lower after falling almost US$4 on Thursday. On Friday morning, the March crude contract on the New York Mercantile Exchange was down $2.23 to US$70.91. Canadian Natural Resources (TSX:CNQ) lost C$2.29 to C$67.81 while EnCana Corp. (TSX:ECA) fell $1.03 to $31.93.
The financial component lost almost just over one per cent with Manulife Financial (TSX:MFC) down 51 cents to $18.93 and Royal Bank (TSX:RY) lost 80 cents to $52.21.
The April bullion contract on the Nymex declined $10.20 to US$1,052.80 an ounce but the gold sector rose almost two per cent. Barrick Gold Corp. (TSX:ABX) advanced C$1.14 to $37.59 while Goldcorp Inc. (TSX:G) gained $1.63 cents to $37.21.
The TSX Venture Exchange was down 19.2 points to 1,432.98.
Most New York markets also added to Thursday's steep losses.
The Dow Jones industrials lost 126.4 points to 9,875.8 after losing 268 points.
The Nasdaq composite index edged 15.65 points higher to 2,109.78 while the S&P 500 index shed 13.5 points to 1,049.6.
In corporate news, Toyota's president apologized for the automaker's global recalls. Toyota Motor Corp. President Akio Toyoda said the automaker was still deciding what to do to fix braking problems with the popular Prius gas-electric hybrid.
Toyoda said the company was moving quickly on the global recalls covering 4.5 million vehicles for sticking gas pedals. In New York, Toyota shares moved up $2.07 to US$73.85.
Brookfield Properties Corp. (TSX:BPO) reported Friday that net income tumbled nearly 60 per cent in the fourth-quarter, compared to a year earlier when it booked one-time tax gains. The New York-based spinoff of conglomerate Brookfield Asset Management (TSX:BAM.A), which reports in U.S. dollars, said earnings were US$181 million, or 35 cents per share, for the quarter ended Dec. 31. Brookfield Properties shares gained 31 cents to $13.49 while Brookfield Asset Management shares were unchanged at C$22.30.
Oilsands developer UTS Energy Corp. (TSX:UTS) says it will be able to access less bitumen than previously thought because of environmental restrictions. UTS says the Fort Hills and Frontier projects have had a total of nearly 150 million barrels removed from their contingent resource estimates. UTS has a 20 per cent share of the Fort Hills project, as does Teck Resources. Suncor Energy (TSX:SU) owns the remaining 60 per cent stake. UTS shares dipped three cents to $2.49 while Suncor was down 62 cents at $31.09.
