Toronto's main stock index plunged more than 2 percent on Wednesday to its lowest point this month as weak U.S. data and a looming deadline for raising the U.S. debt ceiling sent investors searching for safety.

Republicans and Democrats rushed to rework rival plans for deficit reduction, but with the fate of both proposals heavily in doubt, top lawmakers pursued a behind-the-scenes compromise to avert a crippling U.S. debt default.

A late statement from White House that the government would be "running on fumes" if the debt ceiling isn't increased by the deadline added to selling.

Further undermining investor confidence, U.S. data showed new orders for long-lasting U.S. manufactured goods fell unexpectedly in June, and a gauge of U.S. business spending plans slipped.

"The macro issues are the major driver," said Fergal Smith, managing market strategist at Action Economics.

"The market is keying off the U.S. budget gridlock, but also the weak U.S. data."

The materials and energy sectors weighed most heavily on the index, down 2.77 percent and 2.21 percent respectively, as global commodity prices fell.

Suncor Energy (SU.TO: Quote) was the biggest weight on the index, falling 2.7 percent to C$38.14, while Toronto-Dominion Bank (TD.TO: Quote) followed, down 2.1 percent at C$77.

Research In Motion (RIM.TO: Quote) also dragged the index lower. Its shares fell 5.7 percent to C$24.37 after UBS cut its price target, saying the BlackBerry maker is still in the early stages of a software transition and is facing daunting competition.

The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE ended the day down 267.89 points, or 2.01 percent, at 13,032.67. All of its 10 main groups were weaker.

"The loss has been very broad based," Smith said. "Investors are trying to manage the risk profile against the current backdrop."

Helping to offset losses, shares of Sino-Forest (TRE.TO: Quote) jumped 8 percent to C$7.69 after a large Singapore-based fund increased its stake in the embattled Chinese forestry company to nearly 15 percent.

The stock was the most influential gainer on the index and the most heavily traded, with more than 12 million shares trading hands.

Also helping support the market was Valeant Pharmaceuticals International (VRX.TO: Quote). It's stock rose 0.5 percent to C$52.75 after reports that the Canadian company had made a takeover offer for Swedish drugmaker Meda AB (MEDAa.ST: Quote)

Husky Energy Inc (HSE.TO: Quote) reported higher-than-expected second quarter profit, and said it expects to recoup its investment in a $6.5 billion Asian offshore gas project in four to five years.

Shares of Canada's No. 3 oil producer and refiner fell 0.6 percent to C$26.52, a marginal loss when compared to the overall decline in the energy sector.

Canadian Pacific Railway (CP.TO: Quote) reported a rise in quarterly revenues, though its profit fell 23 percent due to weather-related problems. Its shares ended the session down 0.63 percent at C$58.