October 6, 2008 / 9:36 PM / 10 years ago

UPDATE 4-Recession worries drag Toronto stocks down 5 pct

* Oil and gas sector falls 9 pct, leads market tumble

* Financial group declines after European selloff

* Scotiabank sees Canadian recession (Adds quotes and details)

By Cameron French

TORONTO, Oct 6 (Reuters) - The Toronto Stock Exchange’s main index dropped more than 5 percent on Monday, as signs that the U.S. financial crisis was spreading to European banks sent investors in world markets running for the exits.

The commodity-heavy TSX posted its biggest intraday loss since Black Monday in 1987, falling more than 10 percent at one point before regaining about half its losses.

Worries over a global recession sent oil prices tumbling, leading to a 9.4 percent drop for the energy sector, which was the weakest of the 10 main TSX subgroups, all of which finished in the red.

“Clearly you have motivated selling. Whether it be margin calls, whether it be hedge fund activity or whether it just be general investor nervousness, given that there are a lot of imponderables out there making people quite nervous,” said Irwin Michael, portfolio manager at ABC Funds.

The S&P/TSX composite index .GSPTSE ended down 572.92 points, or 5.3 percent, at 10,230.43.

Stocks fell hard right off the open as the emergency rescue of two big European banks and a move by several European governments to guarantee bank deposits ignited fears of a global recession.

This pulled oil prices below $90 a barrel for the first time since February, hammering shares of Nexen Inc NXY.TO, which fell 13.8 percent to C$18.18, and Suncor Energy (SU.TO), which ended down 13.6 percent at C$31.50.

“The bottom line is there is considerable emotion right now — a lot of fear, as opposed to the greed that we saw a couple of years ago,” said Michael.

At mid-morning, the index was down by more than 1,100 points, or 10 percent, its biggest intraday percentage loss since the market crash of October 1987 and its biggest point loss ever.

It also fell briefly below the 10,000 point level for the first time since July 2005, before paring losses through to the close.

After dropping nearly 15 percent in September amid the failure or restructuring of several U.S. financial institutions, the index has felt little relief from the passage of a $700 billion Wall Street bailout on Friday.

“It looks like (the crisis) is spreading to Europe, and investors are still not convinced that the bailout is going to work,” said Lex Kerkovius, senior research analyst at McLean & Partners Wealth Management in Calgary.

“It’s a wait-and-see kind of game, and extreme volatility ... and I mean extreme,” he said.

Adding to investor fears was a report by economists at Bank of Nova Scotia (BNS.TO) that predicted Canada’s economy would head into a recession [ID:nN06331854].

Materials stocks fell 6 percent as concerns about demand pulled down base metals prices.

Sherritt International (S.TO) dropped 12.78 percent to C$4.34, while Cameco Corp (CCO.TO) dropped 11.2 percent to C$19.75.

The financials sector fell 3.7 percent, while the utilities subgroup dropped 6 percent, led by an 8.3 percent fall in TransAlta Corp (TA.TO). The stock ended at C$25.23.

The blue-chip S&P/TSX 60 .TSE60 retreated 31.08 points, or 4.8 percent to 615.68.

Trading volume was a heavy 698.5 million shares, valued at C$9.8 billion. Declining issues totaled 1,670, easily eclipsing a meager 122 issues that advanced during the session.

U.S. markets also sold off, although their lower weighting of resource issues saved them from the steep losses in Canada.

The Dow Jones industrial average .DJI dropped 369.88 points, or 3.6 percent to 9,955.50, while the tech-heavy Nasdaq composite .IXIC fell 84.43 points, or 4.3 percent to 1,862.96.

$1=$1.10 Canadian Reporting by Cameron French; editing by Rob Wilson

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