TORONTO - The Toronto stock market closed sharply lower Wednesday as nervousness about the American economy resurfaced and investors became increasingly concerned about the worsening debt crisis in Greece.
The S&P/TSX composite index fell 125.79 points, giving up a big chunk of Tuesday's 158-point surge, to 12,972.03, leaving the main index down 9.5 per cent from the highs of the year registered in March.
The TSX Venture Exchange moved down 20.98 points to 1,924.22.
A day after a better than expected U.S. retail sales report sent North American markets surging, investors were dismayed with data showing that manufacturing activity deteriorated sharply in the New York region in June.
"Today is a new day and the problems haven't gone away," said Chris Kuflik, ScotiaMcLeod wealth adviser in Montreal.
"You may be in the bearish camp, you may be in the bullish camp or somewhere in between but there's not a lot of conviction in this market because there are a lot of question marks right now."
The Empire State manufacturing survey index released by the New York Federal Reserve fell below zero to minus-7.8 in June from 11.9 in May -- the first time the index has been below zero since last November. Economists had expected the index to rebound to 13.3 in June.
"The slump illustrates the extent of the economic slowdown," said Paul Ashworth, chief U.S. economist for Capital Economics in Toronto.
"The detail of the survey was just as disconcerting as the headline, with the new orders, shipments and employment indices all deteriorating sharply."
The Canadian dollar dropped 1.06 cents to 102.15 cents US as European government worries pushed traders to seek the safe haven status of the American currency.
Other data showed a weakening in Canada's manufacturing sector.
Statistics Canada said manufacturing sales in April decreased 1.3 per cent to $46.7 billion with the transportation equipment sector accounting for most of the decline.
New York markets tumbled as the Dow Jones industrials retreated 178.84 points to 11,897.27.
The Nasdaq composite index dropped 47.26 points to 2,631.46 while the S&P 500 index fell 22.45 points to 1,265.42.
The U.S. dollar strengthened against other currencies as Greece's Socialist party entered into power-sharing talks Wednesday with the main opposition conservatives, who were negotiating for the resignation of Prime Minister George Papandreou.
The move came as riots against massive cutbacks ripped through central Athens.
And ratings agency Moody's has put three French banks -- SocGen, BNP Paribas and Credit Agricole -- on credit watch due to their exposure to Greece.
Investors worry that Greece will end up defaulting in some shape or form on its massive debts. That would leave a number of banks and financial institutions in peril, and not just in Greece.
The TSX financial sector fell 1.14 per cent with Royal Bank (TSX:RY) down 62 cents to $53.78 and TD Bank (TSX:TD) was $1.10 lower to $78.48.
The TSX energy fell 1.65 per cent as the stronger greenback helped send the July crude contract on the New York Mercantile Exchange down $4.56 to US$94.81 a barrel.
Crude, which is priced in U.S. currency, tends to fall as the greenback rises and makes oil more expensive for investors holding foreign currency.
The plunge came as the Energy Information Administration said Wednesday that crude inventories fell 3.4 million barrels last week while analysts had predicted a drop of 1.9 million barrels.
At the same time, it said that inventories of gasoline rose 600,000 barrels last week against an expected 1.3 million-barrel rise.
Suncor Energy (TSX:SU) lost $1.03 to $37.36 a day after the energy giant said it won't return to Libya while Moammar Gadhafi remains in power. Suncor head Rick George said the company may announce a writedown as early as next month as a result of the Libyan situation, but no decision has been made.
Cenovus Energy (TSX:CVE) declined 66 cents to $33.32.
The base metals sector was down 1.78 per cent with the July copper contract down three cents at US$4.12 a pound after surging 12 cents on Tuesday. Teck Resources (TSX:TCK.B) declined 89 cents to $45.40 and Taseko Mines (TSX:TKO) gave back 15 cents to $4.32.
Investors also took in some major acquisition activity in the mining sector. Belgium's Nyrstar NV is making a friendly takeover bid for Canada's Breakwater Resources Ltd. (TSX:BWR) in a deal is worth about $663 million, based on $7 per share. Breakwater shares surged $2.22 or 42.69 per cent to $7.42.
The gold sector was the only positive group as investors looking for safety sent the August gold contract up $1.80 to US$1,526.20 an ounce. Goldcorp Inc. (TSX:G) advanced $1.18 to $46.76 while Kinross Gold Corp. (TSX:K) gained 17 cents to $15.11.
Air Canada shares rose 12 cents to $2.01 after the federal government served formal notice Tuesday afternoon that it could table legislation within 48 hours ordering the striking employees back to work if the two sides don't reach a deal. Ottawa says the economy is too weak to withstand a prolonged strike by the carrier's workers.
