The TSX started off a new trading week down about 750 points before clawing its way to about 100 points down around midday.
U.S. stock markets also plunged in early trading Monday, following a big drop in Chinese stocks. The Dow Jones industrial average fell more than 1,000 points in early trading before closing 588 points lower at 15,871 while the Standard & Poor's 500 index fell into correction territory.
Growing concerns about a slowdown in China had already shaken markets around the world on Friday. A big sell-off in Chinese stocks on Monday caused the rout to continue after the benchmark Shanghai Composite Index sank 8.5 percent, its biggest drop since February 2007.
Oil prices, commodities and the currencies of many developing countries also tumbled on concerns that a sharp slowdown in China might hurt economic growth around the globe.
The price of the main North American oil benchmark WTI lost almost 3 U.S. dollars to trade at 38.23 U.S. dollars a barrel.
Market observers noted there is a lot of fear in the markets but investors are told not to panic.
TSX's eight major sectors mostly fell by more than 2 percent, with metals and mining leading the loss down 5.89 percent, utilities down 4.58 percent, energy down 4.27 percent.
Major losers include Canada's four biggest banks, with Royal Bank of Canada, Canada's largest bank, losing 3 percent.
Energy stocks continued their downward spiral, at one point plummeting to the lowest level since December 2003. Suncor Energy Inc. stumbled 3.94 percent.
The Canadian dollar went down on Monday to 0.7576 U.S. dollar, compared with 0.7593 U.S. dollar Friday.