TORONTO - The Toronto stock market fell sharply Monday with losses led by commodity stocks as prices were depressed by a resurgent American dollar and the feeling that energy and metal prices have come too far, too fast.

The S&P/TSX composite index lost 250.18 points to 10,394.78 amid a drop of 3.4 per cent in the energy sector.

"There's a good deal of concern about whether we will see the fundamental demand come in behind the expectation that seeing a slower decline in world economic growth leads to an increased demand for commodities," said Kate Warne, Canadian markets specialist at Edward Jones in St. Louis.

"And there's no signs yet that we'll actually see the demand show up that the rally in commodity prices has already anticipated."

The July crude contract on the New York Mercantile Exchange fell $1.42 to US$70.62 a barrel after oil hit a seven-month high last week. Suncor Inc. (TSX:SU) backed off $1.58 to $37.47.

Shares in natural gas giant EnCana Corp. (TSX: ECA) were off $1.65 to $60.34 after the company said it has entered into fixed price hedge contracts on about 35 per cent of the company's expected natural gas production.

The commodity stocks have made a huge contribution to the 40 per cent jump in the main TSX index since early March.

The base metals sector had run up 150 per cent while the energy sector had surged about 45 per cent boost, paralleling a doubling of oil prices in the past four months.

The TSX Venture Exchange was 21.86 points lower to 1,132.95 while the stronger American currency pushed the Canadian dollar down 1.14 cents to 88.31 cents US.

The U.S. dollar rose against other currencies after Russia's finance minister, Alexei Kudrin, said during a weekend meeting of G-8 finance ministers in Italy that the greenback's status as the world's main reserve currency wasn't likely to change soon. He has been one of those in the Russian administration raising concern about the dollar in recent months.

Concerns about the pace of the gains since the lows of March 9 and the likelihood of an economic recovery by the end of the year also sent New York markets tumbling.

The Dow Jones industrial average dropped 187.13 points to 8,612.13.

The Nasdaq composite index fell 42.42 points to 1,816.38 while the S&P 500 index -- which had risen about 40 per cent since early March -- was down 22.49 points to 923.72.

Fresh worries about the economy emerged Monday after an index of manufacturing in New York indicated that demand weakened in June from May. The weaker report ran counter to the gradual improvement traders have grown accustomed to with other economic readings.

And Statistics Canada says that manufacturing sales edged down 0.1 per cent to $41 billion in April.

The agency says a 16.4 per cent gain in the transportation equipment industry was offset by weakness in other industries.

The TSX base metals sector fell almost five per cent as a stronger greenback helped send the July copper contract in New York down 8.85 cents to US$2.285 a pound. Teck Resources (TSX:TCK.B) gave back 94 cents to $19.40.

Uranium One Inc. (TSX:UUU) ran up 11 cents to $2.94 as the company inked a deal to acquire a 50 per cent interest in the Karatau Uranium Mine in Kazakhstan. It will buy its portion of the mine from the Russian state-owned uranium mining company known as "ARMZ" (JSC Atomredmetzoloto).

The statement says the purchase price will be paid by way of the issuance of 117 million common shares of Uranium One, which closed at $2.83 on the Toronto Stock Exchange on Friday, and a cash payment of US$90 million.

The financial sector, up 66 per cent over the course of the rally, ticked 1.5 per cent lower with Scotiabank (TSX:BNS) down 61 cents to $40.03 while Royal Bank (TSX:RY) shed 53 cents to $45.18.

Sun Life Financial Inc. (TSX:SLF), one of Canada's largest insurance companies, says it is acquiring the United Kingdom operations of Lincoln National Corp. for about C$395 million. The deal is expected to be completed in the third quarter and Sun Life shares were down 39 cents to $31.01.

The gold sector was down 1.9 per cent as the August bullion contract on the Nymex dropped $13.20 to US$927.50 an ounce. Barrick shares faded 70 cents to $37.33.

In other corporate news, ZoomerMedia Ltd. (TSXV:ZUM), a Toronto company controlled by former Citytv pioneer Moses Znaimer, is acquiring religious broadcast channel Vision TV for $25 million in cash and shares. On the TSX Venture Exchange, ZoomerMedia shares jumped 12.5 cents or 147 per cent to 21 cents.

Advantage Energy Income Fund (TSX:AVN.UN) units fell 55 cents to $5.95 after announcing plans to raise $348 million from the sale of producing assets and equity. The money will be initially used to repay existing debt drawn on its credit facility as a step towards preparing Advantage to develop the Montney natural gas resource play at Glacier, Alberta.