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Traders at the stock exchange in Frankfurt work below a panel showing the German DAX stock index on Friday. ((Associated Press))

North American stock markets extended their sell-off Friday, despite encouraging employment numbers in both Canada and the United States.

Fears of a widening sovereign debt crisis in Europe overshadowed the positive economic news where job growth came in far above expectations.

Finance Minister Jim Flaherty said he has discussed with several Canadian bank CEOs their exposure to the European debt crisis and told journalists he understands it to be "small and contained."

'We're monitoring this carefully.'— Finance Minister Jim Flaherty

He said he has been in close contact with other G7 finance ministers to discuss the risk of possible contagion from Greece.

"We're very much engaged on this through the G7 and through the G20 and we're monitoring this carefully," Flaherty said.

In Toronto, the S&P/TSX composite index finished down 150 points or 1.3 per cent, to 11,692.43.

In New York, the Dow Jones industrial average ended down 139.89 at 10,380.43. The broader S&P 500 fell 17.27 points to 1,110.88 and the Nasdaq was off 54 to 2,265.64.

Canada added 108,700 jobs in April, and U.S. employment grew at its fastest pace in four years, with 290,000 jobs created last month.

The Canadian jobs data encouraged a dollar rebound from three days of losses, as traders bet that the employment news would lead the Bank of Canada to increase interest rates in June, earlier than expected.

The Canadian dollar's official close Friday was 95.80 cents US, up 0.77 of a cent.

Investors were still rattled by Thursday's sell-off on Wall Street — at one stage, the Dow Jones industrial average was in freefall, trading 1,000 points lower.

Meltdown causes havoc in trading pits

For a sense of how traders responded to that meltdown, listen here to audio posted anonymously on the internet.

Oil for June delivery closed down $2 to $75.11 US a barrel. Gold for June delivery soared, finishing up $13.10 US — to $1,210 US an ounce.

World stock markets declined Friday over continued fears about European debt after Thursday's wild swings in North American markets.

In Britain, where investors were grappling with uncertain general election results, the FTSE 100 index closed down 137.97 points, or 2.62 per cent, at 5,123.02 following a slide in the pound.

Thursday's wild ride

There's no definitive answer as to what prompted the wild swings in North American markets, but reports suggested that Thursday's sudden drop was caused by a trader who mistyped an order to sell a large block of stock. The drop in that stock's price was enough to trigger "sell" orders across the market.

The U.S. Securities and Exchange Commission along with the U.S. Treasury and the Federal Reserve are looking into exactly what happened Thursday afternoon between 2:40 and 3:09 p.m. ET — the period when the Dow Jones industrial average tumbled almost 1,000 points and then quickly recovered roughly two-thirds of the loss before the markets closed.

The Toronto Stock Exchange tumbled by more than 400 points before recovering, closing down 32.7 points at 11,842.43 on Thursday.

The Investment Industry Regulatory Organization of Canada, which oversees trading on Canadian stock markets, announced Friday afternoon it had re-priced or cancelled certain trades made between 2:40 and 3:10 p.m. ET on Thursday:

  • Five trades in the Claymore Canadian Financial Monthly Income ETF.
  • 152 trades in Fortis Inc. were re-priced and two trades were cancelled. Trades below $21.60 were re-priced to $21.60.
  • 16 trades in IShares S&P/TSX Capped REIT Index Fund were re-priced, and five trades were cancelled. Trades below $9.50 were re-priced to $9.50.
  • 50 trades in Inter Pipeline Fund were re-priced and trades below $9 were re-priced to $9.00

British Conservative Leader David Cameron was poised to become the new British prime minister. But he would need to govern without a majority after an election marked by fears about how the next government will deal with the country's large deficit.

Germany's DAX finished down 193.17 points, or 3.27 per cent, at 5,715.09, while the CAC-40 in France ended down 122.02 points, or 3.36 per cent, at 3,514.01.

Asian markets closed sharply lower. Tokyo's Nikkei lost 331.10 points, or 3.10 per cent, to 10,364.59, while Hong Kong's Hang Seng tumbled 213.12 points, or 1.06 per cent, to 199,920.29.

Investors around the world are uneasy about the prospect of trouble spreading in the euro zone from Greece's crisis.

Many economists say Greece may be insolvent in the end despite an International Monetary Fund-European Union bailout, and there are fears that other countries will face bond market skepticism — and higher borrowing costs that will worsen their finances in a vicious spiral.

"Countries that are in that situation, be it Portugal, be it Spain, be it Italy, are not going to cut their deficits until push comes to shove, and that's part of the problem — that it's taking too long for these countries to really cut their deficits and [government debt] risk is going to be the theme of 2010, Ric Palombi, portfolio manager of fixed income at Calgary-based McLean and Partners told CBC News.

"Sovereign risk is going to continue to dog the market for the rest of the year," he said.

Meanwhile, the German parliament on Friday approved Berlin's share of the rescue package for Greece. The lower house of parliament approved, granting as much as $28.6 billion US in credit over three years.

The euro rose 1.1 per cent to $1.2755 US late Friday afternoon in New York from $1.2611 late Thursday.

Corrections

  • An earlier version of this story said the TSX was down 0.9 per cent at mid-morning. In fact, it was down 1.9 per cent.
    Oct 16, 2013 12:41 AM ET
With files from CBC News, The Canadian Press and The Associated Press