TORONTO — The Toronto stock market was sharply lower Tuesday after Greece's decision to hold a referendum on its latest rescue package stunned investors and sent shockwaves of uncertainty through global markets.

"It was definitely a bombshell," said Alan Small, senior investment adviser with Dundee Wealth.

The S&P/TSX composite index was well off the worst levels of the day, when it plunged well over 300 points, as gold stocks moved higher while there were reports that the referendum might not take place.

CNBC cited a Greek Socialist party official as saying Papandreou's referendum call is "basically dead."

By mid-afternoon, the main Toronto index had tumbled 155.7 points or 1.27 per cent to 12,096.35 while the junior TSX Venture Exchange fell 33.81 points to 1,581.09.

The Canadian dollar also got caught up in worries the Greek government could lose the vote, which is expected early next year. The loonie was also off the worst levels of the morning but still down 1.88 cents to 98.45 cents US at midafternoon as traders piled into the safe haven status of the U.S. dollar.

If the vote does go against the bailout, Europe could face a messy and disorderly debt default and Greece could end up pulling out of the euro as a currency.

U.S. markets were also off the worst levels of the day, the Dow Jones industrial index down 213.04 points at 11,741.97, the Nasdaq composite index off 60.78 points at 2,623.63 and the S&P 500 index down 26.04 points to 1,227.26.

The announcement of the referendum late Monday by Greek prime minister George Papandreou came just days after European officials outlined a plan to deal with the fact that Greece cannot pay its debts on time.

The three-pronged strategy involved boosting a bailout fund, getting private creditors to take a bigger hit on their Greek debt holdings and forcing banks to raise more capital. Market optimism about the plan had already started to wear thin Monday as analysts looked for more specific details on how the plan would work.

Beyond the lack of a clear date for the Greek vote, there is also no clarity on what the question would be.

"It seems to have undone a lot of the positive feeling that came with that announcement in the middle of last week," added Small.

"Hopefully, in time we will understand a bit more what's going to happen, how the referendum is going to work, what question will be posed and, hopefully, we can see some positive out of what is happening there."

A confidence vote in Papandreou's Socialist government will also take place at the end of this week but it is unclear whether the Socialist government will win it.

The TSX was under particular pressure from the resource sector as the higher U.S. dollar and worsening demand prospects inherent in European instability sent commodity prices lower.

A stronger greenback usually helps depress commodity prices, which are denominated in U.S. dollars, as it makes oil and metals more expensive for holders of other currencies.

The TSX energy sector fell two per cent as the December crude contract on the New York Mercantile Exchange fell $2.09 to US$91.10 a barrel. Suncor Energy (TSX:SU) fell 72 cents to C$31.03 while Canadian Natural Resources (TSX:CNQ) dropped 93 cents to $34.23.

Metal prices also retreated as the December copper contract in New York dropped 13 cents to US$3.50 a pound, sending the base metals sector down 3.17 per cent. Teck Resources (TSX:TCK.B) backed off $1.61 to C$38.35 while Quadra FNX Mining (TSX:QUX) lost 44 cents to $11.06.

Investors also sold off bullion with the December contract on the Nymex down $13.40 to US$1,711.80 an ounce. But the gold sector gained 1.8 per cent while Goldcorp Inc. (TSX:G) rose 91 cents to $49.41 while Barrick Gold Corp. (TSX:ABX) climbed 54 cents to US$49.75.

Worries over how a messy default could damage the eurozone's banks pushed the TSX financial system down 1.9 per cent. Royal Bank (TSX:RY) lost $1.21 to $47.41 while Manulife Financial (TSX:MFC) declined 62 cents to $12.54.

Risk appetite was further dulled by data showing weaker than expected manufacturing growth in China as a government industry group reporting the slowest growth in nearly three years.

The China Federation of Logistics and Purchasing said Tuesday that its monthly purchasing managers index fell an unexpectedly large 0.8 percentage point to 50.4, just above the 50-level that signifies expansion. It forecast the economy would continue to slow in the last months of the year.

China's huge appetite for commodities has driven prices for oil and copper sharply higher and also supported the resource heavy TSX. Its growth is seen as critical in supporting a fragile global economic recovery.

There was also a sign of slowing expansion in the U.S. manufacturing sector. The Institute for Supply Management's index for October came in at 50.8, down from 51.6 in September and worse than the 52.2 reading that markets had expected.

European indexes were hit particularly hard by news of the Greek referendum with London's FTSE 100 index down 2.21 per cent, Frankfurt's DAX fell back five per cent and the Paris CAC 40 lost 5.38 per cent.

In earnings news, global information services company Thomson Reuters Corp. (TSX:TRI) earned US$381 million or 44 cents a share in the third quarter as the company outdid analyst expectations with higher revenue. Its shares were up 23 cents to $29.72.

Oil and gas pipeline company TransCanada Corp. (TSX:TRP) said net income attributable to common shares rose 11 per cent in the third quarter to $384 million on stronger revenues. Earnings were 55 cents on a per share basis, falling short of analyst expectations of 57 cents per share and its shares were down 37 cents to $42.

Atlantic Canada telecom company Bell Aliant Inc. (TSX:BA) had $75.8 million of net income in its third quarter with growth in Internet and TV revenues, turning around a$400,000 loss it recorded a year earlier. Its shares were off four cents to $28.02.

In the U.S., agricultural processor Archer Daniels Midland reported that its fiscal first-quarter earnings rose 33 per cent to US$460 million, thanks mostly to an accounting change. Beyond that, the company made less money processing oil seeds and corn, and its operating profit fell. Its shares dropped 3.8 per cent to US$27.84.