TSX, U.S., European markets plunge amid economic worries

Canadian, American and European stock markets nosedived Wednesday as optimism over government moves to stabilize the financial system were elbowed aside by the prospect of a global recession.

Toronto's S&P/TSX composite index, coming off a one-day record gain of 890 points, closed down 631 points, or more than six per cent, at 9,323. In New York, the Dow Jones plunged 733 points, or almost eight per cent, while the Nasdaq fell 150 points.

In Europe, Britain's FTSE 100 index closed down 7.16 per cent, Germany's Dax dropped 6.49 per cent and France's CAC 40 fell 6.82 per cent.

In Asia, Hong Kong's Hang Seng index lost five per cent after rising more than 13 per cent in the previous two days. Markets in Australia, South Korea and China were also lower.

Japan's Nikkei index bucked the trend, rising 1.1 per cent.

The day started off with bad news: Figures released by the U.S. Commerce Department showed that American retail sales declined by 1.2 per cent last month, nearly double the 0.7 per cent drop that had been expected.

The weakness was led by a 3.8 per cent drop in auto sales.

The dismal figures increased the risks of a recession because consumer spending represents two-thirds of total U.S. economic activity. A recession is defined as two consecutive quarters of decline in gross domestic product.

"This weakening reflects a number of factors, including tight credit, high energy prices and some payback from the temporary boost provided by the tax rebate cheques," said RBC economist Paul Ferley.

"Of the three, the first factor poses the greatest continuing risk to the economy."

Investors also reacted to comments by U.S. Federal Reserve chairman Ben Bernanke, who said the U.S. economy won't bounce back quickly even if confidence in the financial system returns and jittery markets finally calm down.

In a speech to the Economic Club of New York, Bernanke said while stabilization of the financial markets is a critical first step, "broader economic recovery will not happen right away."

The TSX also felt the impact of another sizable drop in oil prices as the November contract for crude fell $4.09 to $74.54 US a barrel on the New York Mercantile Exchange after losing $2.56 on Tuesday.

Energy giant EnCana Corp. announced it will delay its plan to split into two independent energy companies "until clear signs of stabilization return to financial markets." EnCana shares closed down $6.50, or 12.8 per cent, to $44.30.

Other Canadian oil company shares also headed south after posting gains on Tuesday.

Talisman Energy lost $1.35, or 11 per cent, to $10.85, Suncor fell $4.00, or 13.8 per cent, to $24.99 and Petro-Canada dropped $2.02, or 7.5 per cent, to $24.92.

Falling crude prices also helped send the Canadian dollar down 1.91 cents to 84.18 cents US.