05/14/2012 08:25 EDT | Updated 07/14/2012 05:12 EDT

TSX extends selloff, tumbles 206 points: worries mount Greece will exit eurozone

TORONTO - The Toronto stock market tumbled Monday to its lowest level since early October 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 fell back 206.14 points or 1.76 per cent to 11,488.61, with the selloff spread across all sectors. The TSX Venture Exchange was down 42.5 points to 1,303.83.

Resource stocks led TSX declines and commodity prices closed at lows not seen in several months as traders worried about the fallout from a worsening eurozone economy. There was little comfort from a weekend move by China to encourage lending to boost growth.

The sharp loss on the Toronto market added to a slide of 1.58 per cent last week, leaving the TSX almost four per cent below where it started the year. It has tumbled almost 10 per cent since its 2012 highs racked up in late February.

The Canadian dollar was lower as nervous investors avoided risky assets like oil, metals and resource-based currencies such as the loonie. The currency dropped 0.2 of a cent to 99.71 cents US.

U.S. indexes were also negative with the Dow Jones industrials falling 125.25 points to 12,695.35.

The Nasdaq composite index fell 31.24 points to 2,902.58 while the S&P 500 index was down 15.04 points to 1,338.35.

It looked increasingly likely that Greeks will head back to the polls next month after the country's recent election failed to produce an outright winner.

The second-placed left-wing party, Syriza, has refused to join a coalition, demanding that the terms of an international bailout be scrapped or radically renegotiated.

Investors fear that because Greeks voted heavily in favour of parties that want to either cancel or renegotiate Athens’ international bailout, the country may be forced to default and, ultimately, leave the eurozone.

Nobody knows how catastrophic that could be for Europe or the global economy.

"We’ve seen this story before but this time, I’m not so sure it’s going to be a happy ending for Greece," said Allan Small, senior adviser at DWM Securities.

"We need certainty. If certainty means telling Greece to take a hike, then maybe that’s what the eurozone has to do and deal with the consequences and move on."

Prices for oil and metals have been buffeted by indications of slowing economic conditions, particularly in China. Its huge appetite for commodities has sent resource prices sharply higher. But growth has slowed as the country deals with high inflation.

Markets failed to find lift 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 (US$63.4 billion) in financing.

"In previous times, a move like that from the Chinese government would have sent the TSX up quite a bit," added Small.

The energy sector lost three per cent as worries about falling demand pushed prices sharply lower for oil and metals with the June crude contract on the New York Mercantile Exchange down $1.35 to US$94.78 a barrel, its lowest close since just before Christmas. Suncor Energy (TSX:SU) was down 76 cents to $27.99 and Imperial Oil (TSX:IMO) shed $1.07 to $42.14.

The base metals sector was down 4.4 per cent as July copper was off nine cents to US$3.55 a pound, the metal's lowest settlement since mid-January. Teck Resources (TSX:TCK.B) lost $1.29 to $31.70 and HudBay Minerals (TSX:HBM) declined 75 cents to $8.64.

Canadian uranium producer Cameco Inc. (TSX:CCO) said Monday it will pay about US$136 million cash plus assumed debt to acquire Nukem Energy, a German company that trades nuclear fuel products and services. Its shares fell 45 cents to $21.14.

The gold sector shed more than three per cent. Bullion prices also stepped back with the June gold contract falling $23 to US$1,561 to its lowest close since late December. Goldcorp Inc. (TSX:G) faded $1.28 to $33.62 and Iamgold (TSX:IMG) gave back 78 cents to $10.04.

Worries about turmoil in the eurozone financial sector sent the TSX financial component down more than one per cent with Royal Bank (TSX:RY) down 78 cents to $53.22 and Manulife Financial (TSX:MFC) moved down 36 cents to $12.

The tech sector lost almost one per cent with Celestica Inc. (TSX:CLS) down 30 cents to $7.70 while MacDonald Dettwiler and Associates (TSX:MDA) shed 65 cents to $43.97.

Traders were also focused on Spain, which is considered the next most likely country to need a bailout in Europe.

The country’s Treasury managed to raise €2.9 billion in a short-term bond auction on Monday. But concerns over the future of the euro currency union pushed investors to demand higher interest rates to lend the money and caused the Madrid stock market to plummet almost three per cent.

Elsewhere on the corporate front, the executive responsible for trading strategy at JPMorgan Chase, one of the highest-ranking women in Wall Street, on Monday became the first casualty of the bank’s stunning US$2 billion trading loss. Ina Drew was a 30-year veteran of the company. JPMorgan shares were down $1.17 to US$35.79.

Silver Wheaton Corp. (TSX:SLW) shares gave back $1.96 to $24.48 after the world’s largest silver streaming company reported a 20 per cent jump in first-quarter net income to US$147.2 million. Sales rose 25 per cent.