TORONTO - The Toronto stock market plunged more than 350 points Tuesday afternoon with the energy sector in retreat after grim comments about the U.S. economy by Federal Reserve chairman Ben Bernanke sent oil prices tumbling.
Bank stocks also fell, along with investor confidence in the American financial system.
Toronto's S&P/TSX composite index was down 336.97 points to 13,404.32 at midafternoon, after earlier plunging almost 500 points, led by a slide of 3.6 per cent in the energy sector.
"The tone of the market is very negative," said John Stephenson, portfolio manager at First Asset Funds Inc.
"Financials have been a great trade to be in for most of the last 10 years, maybe 20. And it's hard for us to get our minds around the fact that that just isn't the case anymore."
Wall Street indexes were lower but well above earlier sharp losses as oil retreated and financial losses moderated somewhat.
Light sweet crude oil for August delivery plunged abruptly by more than $9 to US$135.92 per barrel on the New York Mercantile Exchange, trading later in the session at $138.51, down $6.67.
"The bottom line is, eventually, oil as a commodity is going to react to the overall economy," said Dan Alpert, managing director at investment bank Westwood Capital.
The oil-price slide followed downbeat congressional testimony by Bernanke. He said the economy confronts "numerous difficulties" including strains in financial markets, rising joblessness and housing problems.
At the same time, he said rising prices for energy and food are elevating inflation risks - and lowering expectations for interest-rate relief.
All TSX sectors were deep in the red as Bernanke's comments intensified worries about the U.S. economy.
The TSX Venture Exchange declined 69.62 points to 2,308.72.
The Bank of Canada left interest rates unchanged, warning that inflation is heating up while economic growth prospects are cooling off.
The Canadian dollar was up 0.50 cent to 99.98 cents US, as the American dollar weakened against most major currencies and hit a new low against the euro.
New York's Dow Jones industrial average was off 7.33 points to 11,047.86.
The Nasdaq composite index gained 12.85 to 2,225.72 while the S&P 500 index lost 3.73 to 1,224.57.
General Motors Corp. supported the Dow, rising 62 cents to US$10 after announcing plans to cut its U.S. and Canadian white-collar salary budget by 20 per cent, further reduce truck production, suspend its dividend and borrow $2 billion to $3 billion.
Financial stocks sold off as confidence in the U.S. financial system eroded despite - or because of - Sunday's government effort to bolster mortgage giants Fannie Mae and Freddie Mac with new lines of credit and possible injections of public money.
Fannie Mae was down $1.62 to US$8.11 while Freddie Mac plunged $1.32 to US$5.79.
Oppenheimer Co. analyst Meredith Whitney added to the concerns by downgrading Wachovia Corp., citing a "very real scenario" of declining assets and rising losses. That increased investor nervousness after a run on IndyMac Bancorp Inc. led to the California lender's takeover by the government Friday.
"When you see people lining up to get their assets out of their bank ... that sends a shiver down people's spines," observed Stephenson.
"I don't think we have the same issues in Canada but there is no question that things are ugly south of the border."
Bernanke said his main concern is not banking-sector insolvency but the prospect that banks will be too reticent in making new loans.
The Canadian financial sector was down two per cent as TD Bank (TSX:TD) lost $2.27 to $53.47 and CIBC fell $1.56 to $49.59. Scotiabank (TSX:BNS) slipped 28 cents to $43.54 after its purchase of E-Trade Canada for $444 million.
Toronto energy stocks stepped back as oil prices fell sharply.
The TSX energy sector was off almost four per cent with EnCana Corp. (TSX:ECA) down $3.34 to $83.27 and Suncor Energy Inc. (TSX:SU) losing $3.33 to $58.29.
The base metals sector retreated 3.75 per cent with Teck Cominco Ltd. (TSX:TCK.B) down $2.59 to $41.31 and HudBay Minerals (TSX:HBM) was 66 cents lower to $11.79.
Investors also had poor American economic data to mull over.
The U.S. Labour Department reported wholesale prices jumped 1.8 per cent last month because of soaring costs for fuel and food. Over the past 12 months, wholesale prices are up 9.2 per cent, the steepest year-over-year surge since 1981.
And U.S. retail sales increased by just 0.1 per cent last month, even weaker than the 0.4 per cent gain that analysts had been expecting, as car-dealer sales skidded 3.3 per cent.
Overseas stock markets sustained deep losses on worries about the American financial sector and wider economy.
London's FTSE 100 retreated 2.4 per cent.
In Tokyo, where the Bank of Japan held interest rates steady while noting that "global financial markets remain unstable and there are downside risks to the U.S. and the world economy," the Nikkei 225 index dropped nearly two per cent to close at 12,754.56.
