North American closed lower Thursday, as a surprisingly weak reading on manufacturing growth fanned fears the U.S. economic recovery is on shaky ground.

The U.S. Institute for Supply Management said its monthly manufacturing index fell in July to its lowest level since January, and below consensus forecasts.

The S&P/TSX Composite Index fell 54.71 points to 6,550.71, as all but one of the TSX subgroups finished lower.

Only the gold sector closed higher, up 2%

The heavily weighted financials subgroup slipped 0.55%, led by Royal Bank, down 69¢ at $52.76, and CIBC, which fell $1.24 to $43.86.

Nortel Networks was unchanged at $1.55 on volume of 13.3 million shares. Bombardier fell 49¢ to $11.49 on word that it had lost out to a French company for a multi-billion dollar contract for New York’s subway system.

Air Canada shares rose 13¢ to $6.83. The airline posted a quarterly profit of $30 million.

Conglomerate Power Corp. reported slightly lower second-quarter profits while its Power Financial subsidiary reported flat earnings. Power shares rose 9¢ to $39.35. Power Financial slipped 5¢ to $38.45.

Insurance company Industrial Alliance rose 65¢ to $37.50 after it reported second-quarter profits that were almost 20%higher.

Rising gold stocks helped the junior TSX Venture Exchange climb 9.54 points to close at 1,031.1.

In, New York, the Dow Jones industrial average dropped 229.97 points to close at 8,506.62. The Nasdaq composite index fell 48.26 points to 1,280.00. The Standard & Poor’s 500 index fell 26.96 points to 884.66.

The Canadian dollar fell another 0.36¢ to close at US62.82¢