The historic U.S. investment bank Lehman Brothers filed for bankruptcy Monday, as nervous investors sent the Dow plummeting by more than 500 points. But Conservative Leader Stephen Harper said Canadians should not expect a recession -- on either side of the border.

"I don't think now the atmosphere should turn to one of complete doom and gloom," he told reporters gathered in Ottawa.

When the markets closed Monday, the Dow Jones industrial average had dropped 504.48 points -- its worst loss since 2001, when it reopened after the Sept. 11 terrorist attacks.

Harper acknowledged that the American economy suffered from instability but he said it "has not crashed and has not itself entered into recession either through all of this."

"I wouldn't throw in the towel on any of this quite yet," said Harper.

"My own belief is if we were going to have some kind of big crash or recession, we probably would have had it by now -- a year into the crisis."

Meanwhile, Liberal Leader Stephane Dion attacked Harper Monday on the economy saying he has allowed it to "hit a brick wall."

NDP Leader Jack Layton also criticized Harper saying his party has a hands-off approach to business. He said the Tories have failed to protect consumers because they haven't put in place enough oversight of financial institutions.

In Canada, the Toronto stock market plunged 515.26 points, mainly due to falling energy stocks. Oil prices closed below US$100 a barrel.

By the time the markets closed, the TSX was at 12,254.32, down four per cent.

Sherry Cooper, chief economist with BMO Capital Markets, said it was too difficult to tell if Canada had hit a recession.

"Too early to say, and too early to say around the world," she told CTV's Mike Duffy Live on Monday. "If we are in a recession, it's a mild one. But we are likely going to see recessions in the U.S., Europe and Japan."

Fred Ketchen, manager of equity trading at Scotia Capital, said investors can expect a bumpy ride for the next few days.

Still, he said Canada's financial institutions are in a much better situation than their U.S. counterparts.

"We're not suffering from the same disease we're just suffering from the symptoms that have flown across the border," Ketchen told CTV Newsnet on Monday.

Lehman Brothers make history

Lehman Brothers made history Monday with the largest bankruptcy filing on record in the U.S., according to BNN's Amanda Lang.

The 158-year-old firm, which has US$639 billion in assets, employs about 25,000 people worldwide.

"Anybody who owns anything of Lehman - equity, debt and all kinds of other stuff -- is going to be in trouble (because of the bankruptcy," Lang told Newsnet. "They're not getting paid."

It's believed the next biggest bankruptcy on record was by Worldcom Inc., which had US$126 billion in assets. Enron Corp. had US$81 billion in assets when it filed for Chapter 11.

Lehman Brothers' demise, which was caused by US$60 billion in soured real estate holdings, comes just six months after the collapse of Bear Stearns.

Meanwhile, Bank of America said in a statement Monday it would acquire Merrill Lynch & Co. in an all-stock transaction worth about US$50 billion.

Merrill Lynch was hit hard by the 14-month-old credit crisis, which saw home values plummet and mortgage defaults rise.

"A lot of people are getting burned," Lorraine Tan, director at Standard & Poor's equity research in Singapore, said Monday.

"It's better to get this out of the system. Hopefully for the U.S. this could be it as far as potential failures of investment banks."