Canada's main stock index slipped from early gains to post its largest daily slump in three months on fears of slowing economic growth as members of the U.S. Federal Reserve signalled that an aggressive rate hike is coming next month to tame inflation.

Craig Jerusalim, portfolio manager at CIBC Asset Management, said the day started out on a positive note because continuing U.S. unemployment claims hit their lowest level since 1969 and Tesla scored a big earnings beat Wednesday evening.

But the markets went sour after Fed chairman Jerome Powell talked about the tightness in the labour market and the need for higher rates to cool down inflation.

During a panel discussion held by the International Monetary Fund, Powell suggested that "there's something in the idea of front-loading" aggressive rate hikes." 

"That led to an expectation that there's going to be a tightening of financial conditions which puts pressure on growth and valuations and essentially the market has been selling off all day since then," Jerusalim said in an interview.

On top of that, the central bank's most hawkish member, St. Louis Fed president James Bullard, has said that he's open to a 75 basis point increase at the May meeting.

"The market had been climbing the wall of worry higher but I think the higher interest rates are just too much for the market to handle," Jerusalim added.

The S&P/TSX composite index closed down 347.97 points or 1.6 per cent to 21,650.41, its worst showing since Jan. 21, after reaching an intraday high of 22,088.13.

In New York, the Dow Jones industrial average was down 368.03 points at 34,792.76. The S&P 500 index was down 65.79 points at 4,393.66, while the Nasdaq composite was down 278.42 points at 13,174.65.

All 11 major sectors on the TSX were in the red, led by materials, energy and technology.

The sector including metals, fertilizer companies and forest product producers plunged 4.1 per cent with Lithium Americas Corp. down 12.4 per cent.

The June gold contract was down US$7.40 at US$1,948.20 an ounce and the May copper contract was up 5.2 cents at US$4.70 a pound. 

Energy lost 3.6 per cent despite increased crude oil prices as shares of Vermilion Energy Inc. fell 6.7 per cent and Birchcliff Energy Ltd. was 6.3 per cent lower.

The June crude contract was up US$1.60 at US$103.79 per barrel and the May natural gas contract was up two cents at US$6.96 per mmBTU. 

The price increase stems from signs that Russian oil production is starting to feel the pinch from sanctions as anecdotal evidences points to its output dropping about 10 per cent since its invasion of Ukraine, said Jerusalim.

The Canadian dollar traded for 79.81 cents US compared with 79.99 cents US on Wednesday. 

Shopify Inc. fell 8.1 per cent to move the tech sector down as investors reacted to reports that the Ottawa-based company is in talks to buy Deliverr for more than US$2 billion. The San Francisco company helps merchants on online marketplaces like Amazon to get products to customers.

"The market is not liking that because ... it's going to cost a lot and a battle with Amazon is never a good thing considering Amazon is such a behemoth," said Jerusalim.

Industrials lost some ground even though Air Canada shares increased 2.8 per cent after United Airlines and American Airlines saw share gains after predicting that booming travel demand will result in a return to profits this quarter.

Consumer staples was lower as Metro Inc. shares sagged 2.6 per cent after warning Thursday that consumers are trading down to discount banners due to inflation, which it expects will hurt future margins.