The Bank of Canada has cut interest rates and suggested more cuts might be needed to counter the impact of the slowing US economy.
The US is the biggest export market for Canada
The Canadian central bank reduced interest rates by half a percentage point to 3.5% from 4%.
"There are clear signs that the US economy is likely to experience a deeper and more prolonged slowdown than had been projected," the bank stated.
Canada sells about 75% of its exports to the US.
The bank added that risks to Canada's economic outlook were materialising and in some cases "intensifying".
"This stems from further weakening in the residential housing market, which is adversely affecting other sectors of the US economy and contributing to further tightening in credit conditions," it said.
This is the second time this year the bank has cut rates in a bid to boost the economy. In January the bank reduced rates to 4% from 4.25%.
Central banks worldwide have reduced rates since the credit crunch hit last summer, amid fears the US slowdown could turn into a wider recession.
Earlier on Tuesday, Ben Bernanke, the US Federal Reserve chairman, said the rise in repossessions of homes called for a "vigorous response".
The number of people unable to pay their mortgages has increased - especially in the sub-prime sector that specialises in providing loans to risky borrowers - leading them to default.