The Canadian dollar lost almost a cent Monday to close at a six-week low of 96.36, and the Toronto Stock Exchange was dragged down by continuing worries about European debt loads.

The TSX ended the day down by 107.76 points, or 0.9 per cent, at 11,784.68. That was off its worst lows of the day, when it fell by 257 points. 

The main source of the gloom was continuing debt problems across numerous European nations.

The Canadian dollar has been steadily been moving lower from its peak of $1.06 US in July, Shaun Osborne, chief foreign exchange strategist at TD Bank, told CBC News.

"We’re getting close to where we think the Canadian dollar may begin to stabilize in the short-term but there’s probably a bit more softness to come in the next week or two and maybe extending into the early part of next year," he said.

U.S. deficit debate

In addition to the worries over how Europe will resolve its fiscal problems, investors have concerns over the apparent failure by U.S. lawmakers to reach a deal on how to bring their deficit under control, something which will trigger automatic budget cuts into 2013.

That "is layering in an additional worry for investors because that could slow the U.S. economy down a little bit more in an environment where the global economy is already looking quite fragile," Osborne said.

Spain on Sunday became the third European country in as many weeks ( after Greece and Italy) to change its government because of discontent generated by the debt crisis. The new Spanish government moved quickly to pour another $4 billion US into Banco de Valencia to keep it afloat amid a slew of bad real estate loans. It's the fourth bank that the Spanish government has moved to nationalize since debt problems emerged in 2009.

Widespread strikes against austerity measure continued in Greece on Monday, and Italian debt continues to trade at unsustainably high yields — suggesting investors have doubt in the country's ability to finance itself.

On Monday, ratings agency Moody's Investor Service warned that France will have trouble financing its own debt if high borrowing rates continue.

Oil closed down 75 cents US with a barrel of the North American benchmark crude trading at $96.92 US.

U.S. exchanges were also lower as politicians south of the border approach a Nov. 23 deadline to agree on how to improve government finances by $1.2 trillion over the coming decade.

The Dow Jones industrial average finished down 248.02 points, or 2.1 per cent, at 11,548.22.

U.S. trading is likely to be volatile this week on reduced volume, because the country is girding up for the Thanksgiving Day holiday on Thursday.

"People are going to square their books, meaning if they see any risk they don't want to take for the long weekend, they're going to remove that risk or sell that risk off,"  said Ian Nakamoto, director of research at MacDougall, MacDougall and MacTier.

December gold fell $46.50 to $1,678.60 US an ounce. Gold typically performs well during times of doubt and uncertainty.