05/14/2012 12:37 EDT | Updated 07/14/2012 05:12 EDT

Stocks, dollar fall on Greece worries

The Toronto stock market fell sharply along with other world markets Monday as talks aimed at forming a new Greek government failed, raising worries the country may have to exit the eurozone.

The S&P/TSX composite index tumbled 149, or 1.3 per cent, to 11,546 in late morning, after losing as many as 178 points earlier.

The Canadian dollar was lower, dropping 0.12 of a cent to 99.79 cents US, as nervous investors avoided risky assets like oil, metals and resource-based currencies such as the loonie.

In New York, U.S. markets were down 0.7 per cent, with the Dow Jones industrials down 68 points to 12,752, the Nasdaq composite index off 20 points at 2,914 and the S&P 500 index down 10 at 1,343.

The slump extended a recent run of losses on global markets, with both the S&P/TSX and the Dow down in eight of the last nine sessions.

The TSX fell 1.48 per cent last week on top of a three per cent slide the previous week, leaving the Toronto market about two per cent below where it started 2012 trading.

Politicians in Athens were to resume power-sharing talks today as negotiations to create a government dragged into a second week. The uncertainty is raising concerns that Greece could miss a debt payment and worries about how lenders around the globe will react to uncertainty about how much big banks are exposed to Europe’s debt crisis.

Spain is considered the next most likely country to need a bailout in Europe.

The country managed to raise €2.9 billion in a short-term bond auction on Monday. But concerns over the future of the euro currency union forced the Spanish treasury to entice investors by paying a rate of three per cent, compared with 2.6 per cent in the last such auction on April 17.

The crude contract for June delivery on the New York Mercantile Exchange was down $1.60, or 1.7 per cent, to $94.44 US a barrel.

Oil was also weighed down by concerns that China's economy, the world's second-largest, is slowing faster than expected.

Investors appeared to take little comfort from a weekend move by the Chinese central bank to cut bank reserve requirements by 50 basis points following Friday's release of disappointing economic data.

The reserve cut is expected to free over 400 billion yuan ($63.4 billion Cdn) in financing.

"We think the move is a confidence-boosting measure rather than an attempt to significantly increase credit supply, since demand for credit remains weak," said Sreekala Kochugovindan at Barclay's Capital in London.

"Our economists expect the government to take further measures to stabilize growth, including more investment projects, reducing the tax burden and allowing private sector investment in strategic industries. We continue to expect economic growth to bottom out during the second quarter."

July copper was off nine cents to $3.56 US a pound. Bullion prices were also down sharply with the June gold contract falling $21.50 to $1,562.50 US.

The euro dropped to a nearly four-month low, down 0.6 per cent to $1.28 US.

"The euro/dollar (exchange rate) is starting the week under pressure and the global markets should continue to suffer from some risk-off positioning until we can have a better idea of what happens next in Greece," said analyst Olivier Jakob of Petromatrix in Switzerland.

European bourses were down sharply in the last half hour of trading, with London's FTSE 100 and Frankfurt's DAX losing two per cent and the Paris CAC 40 giving back 2.2 per cent.