TORONTO -- Stock markets got off to a tumultuous start in the first trading day of the year as a sharp decline in China triggered a sell-off that spread worldwide.
It started with a nosedive in Chinese stocks -- the main index sliding seven per cent -- after the world's second-largest economy posted the 10th consecutive month of weaker manufacturing data.
As traders reacted to that and other uncertainties affecting the country's economy, the drop in prices enacted a new "circuit breaker" mechanism that closed trading early to limit losses. The Shanghai index shed 6.9 per cent to 3,296.66 before the market was closed early to avert steeper falls.
The uncertainty appeared to set off a panic across other global markets as questions arose about the fallout's repercussions to other economies.
Toronto's main stock market emerged less scathed than most others, losing about 0.6 per cent for the day, helped by a rally in gold stocks.
The S&P/TSX composite index closed down 82.80 points on Monday, taking the index to 12,927.15, after falling as much as 262 points earlier in the day.
But neither Wall Street nor markets in Europe fared quite as well.
In New York, the Dow Jones average marked its biggest loss in two weeks, closing down 1.6 per cent, or 276.09 points, at 17,148.94. The broader S&P 500 index declined 31.28 points to 2,012.66 and the Nasdaq lost 104.32 points to 4,903.09.
European markets were also bruised, with the DAX in Germany, whose export-led economy is sensitive to developments in China, down the most at 4.3 per cent.
"This is really an affirmation to the market that China is going to continue being the central global risk," said Craig Fehr, Canadian market strategist at Edward Jones in St. Louis.
Fehr said after years of stimulus from central banks, investors need to become more accustomed to relying on economic data to stand on its own.
This year, the markets could feel the impact of the shift as traders respond to good news and bad news "more sharply," he suggested.
"I think this is going to be more the norm than the exception moving forward," Fehr said.
The Canadian dollar ended at 71.73 cents U.S., down 0.52 of a cent from Thursday's close before the New Year's holiday.
Last year, the loonie was stripped of nearly 14 cents of its value against the U.S. dollar, making it the worst performing of the G10 currencies, according to a report from TD Securities.
The bank's troubling outlook for the dollar, outlined in a report titled, "Return of the Northern Peso," suggested that tight corporate spending, a "non-trivial" chance of further monetary easing and a subdued outlook for oil prices all factored into its pessimistic view.
"We see the Canadian dollar remaining under pressure for the next three to six months," TD Securities senior FX strategist Mazen Issa wrote.
In commodities, gold prices settled at their highest level in more than a week, helping the sector lead gains on the TSX, rising 3.7 per cent.
The February contract rose $15 to US$1,075.20 an ounce. Gold is often seen as a safe haven in times of political or economic uncertainty.
Fresh political tensions between Saudi Arabia and Iran left traders questioning the outlook for oil prices.
The February crude contract was originally up but eventually gave way to close 28 cents lower at US$36.76 a barrel, while the February contract for natural gas was unchanged at US$2.33.
