NEWS

Loonie drops below parity amid gloomy EU data

03/06/2012 04:21 EST | Updated 05/06/2012 05:12 EDT

The Canadian dollar and North American financial markets pulled back sharply Tuesday after steep losses in Europe.

The currency closed below parity, losing 0.64 of a cent to 99.94 cents US as traders bought into the relative safety of the American dollar.

The S&P/TSX composite index tumbled 225.32 points, or 1.8 per cent, to 12,298.63.

In New York, the Dow Jones industrial average was down 203.66 points, or 1.57 per cent, to 12,759.15, its first one-day triple-digit decline this year.

The Standard & Poor's 500 index was down 20.97 points, or 1.54 per cent, to 1,343.36. The Nasdaq composite index fell 40.16 points, or 1.36 per cent, to 2,910.32.

Investors faced a convergence of worries: renewed concerns about a messy default by Greece, slowing global growth and the possibility the U.S. Federal Reserve has decided to wean the economy from further stimulus.

In addition, stocks have been rallying without a significant pullback since the first of the year.

"Rising concerns over global growth expectations as well as the sense that many markets are 'overdone' have encouraged the turn in markets," said Scotia Capital chief currency strategist Camilla Sutton. "We are entering a period of retracement."

European markets closed lower amid uncertainty about whether enough private bondholders will sign on to a debt relief deal.

Stocks in Germany fell 3.4 per cent and in France the major index was lower by 3.58 per cent. The main stock index in Britain was down 1.86 per cent.

The debt relief deal is a requirement for a second bailout for Greece, and an announcement on whether it will be accepted by the required margin — by creditors holding 75 per cent of the face value of the private debt — is expected Thursday. The fear is that without the agreement, Greece will default.

European stocks were also pulled lower by data showing that fourth-quarter economic growth in the eurozone was weak.

Gross domestic product dropped 0.3 per cent from the previous quarter.

"Together it points to a notably weak economy and adds to the negative global growth overtones provided by yesterday's announcement from China," added Sutton.

China forecasts slower growth

On Monday, Chinese Premier Wen Jiabao announced that the country was targeting a lower growth rate of 7.5 per cent, compared with eight per cent before.

While that had been largely widely anticipated, it worried some traders who view strong Chinese growth as an important prop for a global economy still struggling to recover from the 2008 financial crisis,

Yet another report showed that Brazil's economy expanded 2.7 per cent last year, well below the 7.5 per cent growth seen in 2010. Officials said the economic problems in Europe and the U..S are mostly to blame for the lower demand for Brazil's commodities.

And, in a speech in Monday, Dallas Federal Reserve president Richard Fisher criticized investors for calling for a third round of stimulus spending by the Fed, accusing the financial sector of becoming "hooked on the monetary morphine."

May copper closed down 12 cents at $3.74 US a pound on top of a four cent loss Monday. China is the biggest consumer of the metal.

The April crude contract was down $2.02 cents to $104.70 US a barrel.

Bullion also lost ground as the April contract lost $31.80 to $1,672.10 US an ounce.

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