TORONTO — A possibility of a rating downgrade of British government debt and renewed worries about an American economic recovery sent North American stock markets down sharply Thursday.

Toronto's S&P/TSX composite index tumbled 282.85 points or 2.75 per cent to 9,949.59 as investors took some profits from a strong spring rally.

"There will be some temptation to take a little bit off the table after the runup we've seen," said Avery Shenfeld, chief economist at CIBC World Markets.

"And likely some patience will be required by equity investors who want to hang in there waiting for the kind of economic data that will in fact confirm the rally has made sense."

The TSX Venture Exchange added 4.21 points to 1,089.85.

The Canadian dollar rose 0.18 of a cent to 87.87 cents US as Statistics Canada reported that wholesale sales in current dollars fell 0.6 per cent to $40.5 billion in March, largely due to declining sales in building materials, machinery and electronic equipment. The volume of sales fell 1.3 per cent.

New York's Dow Jones industrial average lost 129.91 points to 8,292.13.

The Nasdaq composite index fell 32.59 points to 1,695.25 while the S&P 500 index declined 15.14 points to 888.33.

Credit ratings agency Standard & Poor's said that Britain may have its rating cut because of rising debt levels.

The ratings agency reaffirmed the country's actual ratings but it lowered its outlook to "negative" from "stable" because of enormous borrowing aimed at battling the recession and banking crisis.

Investors worry cuts to the outlook are possible in other countries like the United States which are borrowing heavily to finance massive stimulus plans.

But analysts noted that concerns don't extend to a possible default on debt.

"A government in terms of its credit rating in its own currency, really isn't anything but triple-A in the sense that ultimately, they have the power to print the currency to pay off their debt," Shenfeld said.

"So while it's certainly a reflection of the fiscal crisis that many countries are facing, including the U.K., it doesn't really raise the prospect of the country defaulting on debt that is issued in sterling."

The U.S. Labour Department said Thursday that initial claims for jobless benefits fell to a seasonally adjusted 631,000 last week from a revised figure of 643,000 a week earlier. That was essentially in line with analysts' expectations of 630,000.

But even with the drop in weekly figures, the number of people continuing to claim unemployment insurance edged up to nearly 6.7 million, marking the 16th straight weekly record.

Toronto market losses were led by a 4.5 per cent slide in the energy sector as the latest economic worries sent oil prices lower. The July crude contract on the New York Mercantile Exchange was well off earlier lows, down 99 cents to US$61.05 a barrel after going as low as US$59.92. Crude had run up sharply over the past week to six month highs.

EnCana Corp. (TSX:ECA) fell $3.50 to $58.76 and Suncor Inc. (TSX:SU) declined $1.39 to $34.87.

The financial sector was also a major weight, down three per cent.

Credit Suisse Group has downgraded Royal Bank (TSX:RY), Scotiabank (TSX:BNS), Bank of Montreal (TSX:BMO) and CIBC (TSX:CM). The bank cited valuation and "weakening credit conditions."

Royal shares were down to $1.12 to $42.60, Scotiabank off $1.28 to $35.53, Bank of Montreal shed $1.65 to $41.53 while CIBC gave back $2.21 to $54.20.

The base metals sector pulled back 4.3 per cent as the July copper contract in New York lost 0.056 cents, or 2.7 per cent, to US$2.05 a pound.

Teck Resources Ltd. (TSX:TCK.B) gave back 77 cents to $15.14.

Sherritt International Inc. shares were down nine cents to $5.03. Chief executive Ian Delaney says the Toronto-based mining company and its partners in the Ambatovy nickel project in Madagascar are within a month of finalizing all financing needed for the $4.5-billion project.

The gold sector was the only positive group, up 1.36 per cent as the June bullion contract on the Nymex rose $13.80 to US$951.20 an ounce. Barrick Gold Corp. (TSX:ABX) gained 44 cents to $41.97.