TORONTO -- Another big drop in the price of oil sent Canada's largest stock market into sharp retreat Friday in a sell-off that also drove the commodity-sensitive loonie below 73 cents U.S. for the first time since mid-2004.
Traders headed for the exits as oil fell below US$36 a barrel following a report by the International Energy Agency that said the global oversupply of crude would continue until late next year while demand would weaken.
The Canadian dollar, which has hit several new 11-year lows since it closed last week at 74.76 cents U.S., was down another 0.59 of a cent at 72.77 cents U.S.
"I still think the trajectory (of the loonie) is probably going to be lower but not materially lower," said Kevin Headland, director of capital markets and strategy at Manulife Asset Management.
"We're not calling for it to break through 70 cents but there is ... very little going in its favour to move the Canadian dollar predominantly upwards versus the U.S. dollar."
In addition to weak commodity prices, the loonie has been under pressure from a number of other factors, including the Bank of Canada suggesting this week that its trend-setting interest rate could go negative in the event of another financial crisis.
There are concerns that the dollar could fall further next week if the U.S. Federal Reserve raises interest rates at its two-day policy rate meeting, as it's widely expected to. It would be the first time the Fed increases interest rates since 2008.
In Toronto, the S&P/TSX composite index lost 1.74 per cent of its value, closing down 226.64 points to settle at 12,789.95.
Things were even worse in New York, where indexes have been strongly negative most of the week. The Dow Jones plunged 309.54 points or 1.76 per cent to 17,265.21, while the broader S&P 500 fell 39.86 points or 1.94 per cent to 2,012.37 and the Nasdaq shed 111.70 points or 2.21 per cent to 4,933.47.
In economic news, the Commerce Department reported that U.S. retail sales rose 0.2 per cent in November, indicating that holiday shopping south of the border is off to a solid if unspectacular start.
But that failed to impress investors, even though consumer spending is a big part of the U.S. economy.
Traders are also anxiously awaiting weekend reports on retail sales and industrial production in China, the world second-largest economy, which has faltered in recent months.
"Sometimes when you're uncertain of the reaction of the market to the news that comes out, you'd rather be on the sidelines," Headland said of the heavy selling.
In commodities, the January contract for benchmark U.S. crude oil was down $1.14 at US$35.62 a barrel, while January natural gas shed 2.5 cents to US$1.99 per mmBtu. The capped energy sector was the biggest decliner on the TSX, down 3.33 per cent.
The February gold contract rose $3.70 to US$1,075.70 an ounce, while battered copper prices rebounded four cents, with the March contract settling at US$2.12 a pound.
