Canada's S&P/TSX composite index tumbled 303.12 points or 2.7 per cent to 11,172.30 points around noon EDT – the biggest one-day drop this year. The market has since recovered slightly, and was down 179.72 to 11,295.70 in mid-afternoon trading Thursday. On Wednesday, the S&P/TSX fell 190.72 points. Including Thursday's early losses, the TSX's main index is down about 5 per cent this week.
North American stocks slumped Thursday, with Canada's benchmark index shedding more than 300 points, following overseas markets lower on concern that U.S. rate hikes will slow growth.
News of the death of an al Qaeda leader in Iraq failed to reassure investors, and the European Central Bank's decision to raise interest rates Thursday reinforced an upward trend in global rates.
Gold and mining shares were the biggest decliner. Spot gold fell as low as $610.70, the lowest since April 21. Gold has dropped by about $120, or 16 per cent, from its 26-year high of $730 hit on May 12.
“Panic seems to be spreading in the global capital markets,” said Dennis Gartman, editor and publisher of The Gartman Letter, a U.S. daily market newsletter.
Strength in the U.S. dollar continued to pick up, pushing the Canadian dollar down to 89.03 cents (U.S.) from 89.81 cents yesterday.
In the U.S., the Dow Jones Industrial Average shed 170.65 points to 10,760.25. The tech-heavy Nasdaq composite dropped 41.18 points to 2,110.62. The S&P fell 15.13 points to 1,241.02.
The losses came after U.S. stocks dropped on Wednesday, extending investors' losses for a third straight session and pushing the Dow Jones industrial average below 11,000 for the first time since March 9.
The Dow has lost more than 400 points this week; the selloff has also wiped out the Nasdaq composite index's gains for the year and put the Standard & Poor's 500 index less than 8 points away from its Dec. 31 close.
Wall Street found some support from lower oil prices following the death of a terrorist leader in Iraq and easing political tensions in Nigeria and Iran. A barrel of light crude fell 79 cents to $70.03 on the New York Mercantile Exchange.
Stock markets in Asia tumbled to their lowest levels in months Thursday and European shares also declined amid anxiety that possible U.S. interest rates hikes will slow global growth.
Japan's benchmark Nikkei 225 index tumbled 3.07 per cent to 14,633.03 points, its lowest in six months, while Indian shares plunged 4.7 per cent.
South Korean shares dropped to their lowest level in seven months after the Bank of Korea unexpectedly raised interest rates, and Australia's stock market fell 2.35 perc ent.
London's FTSE 100 index was down 1.7 per cent at 5,609, the German DAX Xetra 30 was off 1.9 per cent at 5,438 and the French CAC-40 index fell 1.8 per cent to 4,735. Heavy losses were seen in the commodities, oil and technology sectors.
Confusion about U.S. monetary policy and doubts about U.S. growth have hammered global markets over the last month, particularly in Asia. A slump on Wall Street has made investors jittery.
The downturn has been “largely induced by sentiment over the interest rate background and in particular the Fed's intentions,” said Mike Lenhoff, chief strategist at Brewin Dolphin Securities. “If the central banks are a little too aggressive in raising interest rates, then that will impair the prospects for corporate earnings growth.”
The European Central Bank raised its key interest rate by a quarter of a percentage point to 2.75 per cent Thursday, as expected, in a move aimed at keeping inflation at bay. The Bank of England held interest rates steady at 4.5 per cent.
Growing speculation that the U.S. Federal Reserve will also raise interest rates later this month has triggered worries about a slowdown in the U.S. economy, which could undermine demand for exports.
“Until uncertainties about the U.S. interest rate policy and the outlook over the American economy will be erased to some extent, the Tokyo market's direction will remain unstable,” said Takashi Ushio, a strategist at Marusan Securities Co. in Tokyo.
The Japanese stock market has fallen about 9 per cent this year, while Indian shares have fallen a stunning 26 per cent over the last month.
Hong Kong shares also declined Thursday, with the blue-chip Hang Seng Index falling 366.44 points, or 2.32 per cent, to 15,450.11.
In Taiwan, the benchmark stock index plunged 4.2 per cent to its lowest level in nearly six months. Traders blamed the decline on falling stocks in other regional markets, and on political uncertainty over an opposition campaign to oust President Chen Shui-bian over alleged insider trading by his relatives.
In South Korea, the central bank's unexpected rate hike to 4.25 per cent worsened investors' already negative sentiment, contributing to a 3.5 per cent drop in the Composite Stock Price Index to its lowest finish since Nov. 7.