North American markets plummet

TORONTO – North American stock markets took a hammering Thursday as investors grew ever more pessimistic about the economy with evidence mounting that a serious slowdown may be under way.

The S&P/TSX composite index plunged 435.89 points to 12,380.13, its biggest one-day decline since late June, 2009, while the TSX Venture Exchange fell 112.34 points to 1,853.34.

The Canadian dollar also got caught up in the downdraft as tumbling prices for oil and metals helped push the currency down 1.8 cents to 102.09 cents US.

New York markets also fell hard, with the Dow Jones industrial average tumbling 512.76 points to 11,383.68. The Nasdaq composite index dropped 136.68 points to 2,556.39 while the S&P 500 index was down 60.27 points to 1,200.07.

Just a couple of weeks ago, investors were concerned the U.S. economy had hit a soft patch. Since then a raft of economic data have raised worries it will slip back into recession. Manufacturing, consumer spending and hiring by private companies are below levels that are consistent with a healthy economy.

“It has now become completely about the economy,” said Sid Mokhtari, market technician at CIBC World Markets.

“The evidence suggest there is now the risk of a serious economic slowdown.”

Investors will be looking towards economic data released Friday for more perspective on the direction of the U.S. economy.

Expectations are modest for tomorrow’s U.S. non-farm payrolls report for July, with economists expecting something in the neighbourhood of 75,000 jobs created. Pessimism deepened after jobless insurance claims last week were down by only 1,000.

“If numbers are in line or below what the consensus is, I think we will see the selling pressure continue,” added Mokhtari.

“If it’s better, above estimates, it’s reasonable to say that maybe we can set the tone a little bit better. But having said that, you need about a month or so to get another round of numbers coming at us before we can put a bottom to this thing.”

Canadian jobless figures for July will also be released on Friday and economists expect about 20,000 jobs were created.

Stock buying sentiment has also been hard hit recently by concerns that Italy or Spain may need financial help from the European Union. The benchmark stock indexes in Italy, Germany and England each fell by three per cent Thursday.

Markets have also been driven lower by the weeks of bitter partisan wrangling that preceded an agreement by American lawmakers to raise the U.S. debt limit and avoid a default. The flight to safety has resulted in large investors moving so much money into cash accounts at Bank of New York that on Thursday the bank said it would begin charging some clients a 0.13 per cent fee to hold their cash.

The sour sentiment has taken a substantial toll on the TSX, which has lost ground in six of the last eight sessions, taking the Toronto market down more than eight per cent below where it started 2011 trading.

The Canadian dollar was also affected by the Bank of Japan’s move to control the rise of the yen by selling the currency and buying the greenback.

Asian stock markets tumbled Friday amid fears the U.S. may be heading back into recession and Europe’s debt crisis is worsening.

The sell-off in Asia on Friday follows the biggest one-day points decline on Wall Street since the 2008 financial crisis.