TORONTO - The Toronto stock market closed sharply lower Tuesday as an earnings miss by Bank of Montreal raised worries about results from other banks over the next few days, while commodities backed off as disappointing housing market data raised more doubts about the economic recovery.

The S&P/TSX composite index lost 161.28 points to 11,557.35 while the TSX Venture Exchange moved 18.48 points lower to 1,456.85.

The Canadian dollar was down 0.72 of a cent to 94.31 cents US.

The TSX financial sector led the decliners, down almost three per cent after Bank of Montreal (TSX:BMO) kicked off the big banks' quarterly earnings season by handing in a profit of $669 million or $1.14 per share of cash earnings, which was about seven cents short of analyst estimates.

BMO's capital markets division was hit particularly hard with a 58 per cent decrease in profits to $130 million as it contended with lower trading revenues due to economic uncertainty in Europe.

"I think a lot of areas that are hurting the banks in Canada are conditions in Europe, because all of our major banks do business all around the world," said Don Reed, president and CEO of Franklin Templeton Investment Corp.

"The headwinds they continue to face will be more outside Canada than inside Canada."

BMO shares fell $3.56 or six per cent to $55.50.

CIBC (TSX:CM) reports earnings Wednesday while National Bank (TSX:NA) and Royal Bank (TSX:RY) hand in results on Thursday. Stocks in all three banks lost between two and three per cent after the BMO report.

Losses picked up on markets following data that showed resales of U.S. homes fell to the lowest level in 15 years last month as the economy weakened and the sector keenly felt the absence of a government tax credit program that expired almost four months ago.

The National Association of Realtors said July's sales dropped more than 27 per cent to a seasonally adjusted annual rate of 3.83 million. It was the largest monthly drop on records dating back to 1968. June's sales pace was revised downward to 5.26 million.

"In short, home sales were eye-wateringly weak in July and suggest that the double-dip in house prices that we warned about at the start of the year is just around the corner," said Capital Economics U.S. economist Paul Dales.

"Indeed, at current rates of sale it would now take 12.5 months, up from 8.9 in June, to clear all the homes on the market."

And indications of a softening domestic economy came from Statistics Canada, which reported that retail sales edged up 0.1 per cent to $35.9 billion in June, which was below the 0.4 per cent rise economists expected.

Statistics Canada pointed out that when price changes are factored in, retail sales in volume terms were up by 0.9 per cent.

The largest decline was at gas stations, where sales fell 2.7 per cent as prices at the pump fell.

Meanwhile, the largest increase in dollar terms was a 2.1 per cent rise at motor vehicle and parts dealers.

Elsewhere on the TSX, the energy sector lost 1.75 per cent as oil prices slumped ahead of data expected to show rising inventories.

Analysts are forecasting a build of 1.1 million barrels in U.S. crude oil stocks and a draw of 875,000 barrels in gasoline stocks, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

The October crude contract on the New York Mercantile Exchange fell $1.47 to US$71.63 a barrel. Oil prices have fallen more than $9 a barrel since the beginning of August on demand concerns.

Suncor Energy (TSX:SU) lost 44 cents to C$32.11 while Canadian Natural Resources (TSX:CNQ) was down 88 cents to $32.91.

Other commodity prices were weak, with the September copper contract on the Nymex down five cents to US$3.24. The base metals sector declined 2.73 per cent as Teck Resources (TSX:TCK.B) fell $1.01 to C$32.95 while Lundin Mining (TSX:LUN) dropped nine cents to $4.12.

The consumer staples sector led advancers, up 1.8 per cent. Shares in Alimentation Couche-Tard (TSX:ATD.B) jumped $1.71 or eight per cent to $22.69 as the convenience store owner earned a record US$129.5 million in the first quarter.

Gold stocks were largely little changed as the December bullion contract reversed direction to move up $4.60 to US$1,234.40 an ounce. Kinross Gold Corp. (TSX:K) advanced 30 cents to C$16.25.

The Dow Jones industrials fell 133.96 points to 10,040.45.

The Nasdaq composite index lost 35.87 points to 2,123.76 while the S&P 500 index was down 15.49 points to 1,051.87.

Shares in PotashCorp (TSX:POT) inched 37 cents lower to C$157.80 amid reports the fertilizer giant is in talks with other international companies in a bid to trump a US$38.6-billion hostile takeover offer from Australian mining company BHP Billiton. The Globe and Mail reported that Anglo-Australian firm Rio Tinto is considering a bid alongside a Chinese player.

The board of PotashCorp formally rejected BHP Billiton's US$130-a-share offer on Monday, calling it wholly inadequate.

Meanwhile, Calgary-based farm products company Agrium Inc. (TSX:AGU) said the board of Australian grain marketer AWB Ltd. is recommending its shareholders approve a takeover by the company. Agrium will pay A$1.50 per share for AWB, or approximately C$1.1 billion, a 37 per cent premium to AWB's trading price on Aug. 13, before it agreed to a deal. Agrium shares declined $2.23 to C$70.65.