CANADA STOCKS-TSX dives 3 pct as recession fear grips market

Thu Aug 18, 2011 5:08pm EDT
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 * TSX ends down 392.90 points, or 3.1 pct, at 12,186.71
 * All 10 main index sectors drop sharply
 (Updates to close, adds details, comments)
 By Claire Sibonney
 TORONTO, Aug 18 (Reuters) - Toronto's main stock index
tumbled more than 3 percent on Thursday, rattled by fears that
the world economy might fall into a new recession and the
possibility that the European debt crisis might spread to the
U.S. banking sector.
 All 10 of the TSX index's main sectors were down sharply,
though some gold miners rallied on record bullion prices and
financial shares lost less than their U.S. counterparts,
helping the index outperform markets south of the border.
 U.S. indexes were down around 4-5 percent, while U.S. oil
futures plunged more than $5 a barrel and other commodity
prices also sold off. [O/R] [.N]
 The Toronto Stock Exchange's S&P/TSX composite index
.GSPTSE closed down 392.90 points, or 3.12 percent, at
12,186.71, its lowest close since Aug. 9.
 Among the heaviest decliners, Suncor Energy (SU.TO: Quote) plunged
6.5 percent to C$29.67, Canadian Natural Resources (CNQ.TO: Quote)
lost 6.2 percent to C$33.91, and Potash Corp (POT.TO: Quote) dropped
5.2 percent to C$51.38.
 "When people woke up this morning, the glass wasn't half
full, it was empty," said Paul Hand, managing director at RBC
Capital Markets.
 Hand said he would describe the collective mood of
investors as "manic" given the malaise in the global economy
and Europe's spreading debt crisis.
 Morgan Stanley said on Thursday the United States and the
euro zone were "dangerously close to recession", while an
onslaught of disappointing U.S. economic data, including
factory activity, home resales, jobless claims and inflation,
added to the gloomy mood. [ID:nL3E7JI1LM]
 Meanwhile, the New York Times reported the United States is
investigating whether Standard & Poor's improperly rated dozens
of mortgage securities in the years before the financial
crisis, while the Wall Street Journal said regulators are
questioning the U.S. units of Europe's banks more closely to
see if they have the funds they need to operate reliably.
[ID:nL5E7JI0Q] [nL3E7JI0I6]
 "Until the European authorities, (French President Nicolas)
Sarkozy and (German Chancellor Angela) Merkel, get together and
say we will unconditionally guarantee all deposits at banks in
the European system, then you're not going to get a resolution
of this," said Gavin Graham, president of Graham Investment
 Many money managers, however, said the market drop was
overdone, with some smaller to mid-cap stocks looking
extraordinarily cheap.
 "It's like 'Chicken Little,' the sky is falling, and people
are very nervous," said Irwin Michael, portfolio manager at ABC
Funds, noting the cover story of Maclean's magazine this week
with the headline: "This could get really ugly."
 "This is a liquidity-driven decline ... there's a desire
for liquidity and it appears that investors, whether they be
institutions or retail, are just selling down to their sleeping
point," he added, noting that markets are even more volatile
because volume is light.
 Among the top gainers on the index, software company Open
Text OTC.TO surged 6 percent to C$54.00, New Gold (NGD.TO: Quote)
jumped 1.5 percent to C$12.15, and Agnico Eagle (AEM.TO: Quote) added
0.6 percent to C$63.00.
 ($1=$0.99 Canadian)
 (Editing by Peter Galloway)