Stock markets in Canada and the United States had another bad day Thursday as interest rate worries again sent investors to the sidelines.

The S&P/TSX composite index shed 237.71 points to a close of 13,703.88 — a drop of 1.7 per cent. That followed a drop of 200 points on Wednesday.

S&P/TSX composite index three-month trading

"I think we've got a few more weeks [of selling]," said Sprott Asset Management portfolio manager Peter Hodson. "A lot of uncertainty and fear has come back into the market very fast," he told CBC News.

Every industry sector was lower, with energy, mining, industrials and golds off by more than two per cent. Gold futures dropped more than $10 US an ounce in New York trading.

The interest-sensitive utilities sector lost 3.3 per cent.

Energy stocks fell even though oil futures gained 73 cents, to $66.69 US a barrel. 

The heavily weighted financials sector slipped by 1.3 per cent.

Despite this week's losses, the benchmark index of the TSX is still up 6.2 per cent so far this year. The index is now back to where it was in early May. 

In New York, the Dow Jones industrial average fell for the third straight day — down 198.94 points to 13,266.73. The Dow fell almost 130 points on Wednesday. In the past three days, it's lost more than 400 points.

Year-to-date, the Dow is still up by 6.5 per cent. But since the Canadian dollar has risen about nine per cent against the U.S. dollar, Canadian investors may find that their U.S. investments have lost money this year. 

The yield on the U.S. Treasury's 10-year bond passed five per cent on Thursday — rising to its highest level in 11 months.

High interest rates hurt corporate profits

Recent signs of economic strength in the United States and comments this week from U.S. Federal Reserve chair Ben Bernanke about the risks of rising inflation have increased the likelihood that interest rates will not be cut in the U.S. and may even go up.

Higher interest rates scare investors because they hurt corporate profits.  

Other central banks have been in a rate-hiking mood. The most recent examples came this week, when the European and New Zealand central banks both raised their key lending rates by a quarter of a percentage point.  

The Bank of England left its key rate unchanged Thursday, but it too is expected to raise rates in the months to come.