The Toronto Stock Exchange took investors on a wild ride Tuesday, losing as much as 403 points, but later erasing much of that loss to close down 73.93 points, or .66 per cent, at 11,177.91.
Still, that left the TSX officially in bear market territory (see sidebar), down more than 20 per cent from its April high.
The loonie lost more than a cent to close at below 94 cents US.
U.S. markets turned around late in the session after a string of recent losses, with the Dow Jones industrial index closing up 153.41 points at 10,808.71.
The Nasdaq composite index pushed up 68.99 points to 2,404.82 while the S&P 500 index gained 24.72 points to 1,123.95.
Investors have been concerned over the last couple of months about the slowing pace of economic revival and a possible default by Greece, which would worsen economic conditions and wreak havoc on the European financial sector.
What is a bear market?
A bear market is declared when a stock index loses more than 20 per cent from a recent high. On the TSX, that was in April, when Canada's benchmark stock index was trading above 14,000. Today it is below 11,000.
Several factors have been in play. The debate over the U.S. debt ceiling was briefly considered the main culprit, but more recently, European debt worries have come to the fore again. All have combined to stoke fears of a global recession
All the uncertainty has knocked commodity prices lower, and the TSX is one of the most commodities-heavy stock exchanges in the world. A barrel of oil was worth $114 US in April, for example. Today it's trading at $77.
"Clearly, it's taking quite a toll on the markets," said Kate Warne, Canadian markets specialist at the Edward Jones brokerage in St. Louis.
"No one is sure that policy-makers will move fast enough or do what needs to be done to allow Greece to restructure payments — which is another nice word for saying default."
Those fears were heightened after markets closed by the announcement by Moody's, the credit rating agency, that it had downgraded Italy's bonds by three notches.
Nevertheless, Finance Minister Jim Flaherty said Tuesday he doesn't think Canada will slump that badly and the federal government is not adding any new stimulus — for now.
Flaherty said the government would consider more stimulus if the world economy plunged back into recession, "but I'm relatively confident that what we're going to see in Canada is modest economic growth over the next little while. I'm comfortable ... with that anticipation for the next little while."
Oil hit a new 2011 low, trading down almost two dollars at under $76 US a barrel in New York.
The widely traded December gold contract closed down $41.70 at $1,616 US an ounce, after dipping below $1,600 briefly during the session.
Eurozone finance ministers said Monday in a meeting in Luxembourg that Greece has enough to tide it over until early November. Earlier, there had been fears that Greece could run out of cash by as early as the middle of this month.
For investors, the lack of clarity and the potential for further delays and procrastination was frightening. After falling to a near 2011 low of $1.3162 US on Monday, the euro was trading 0.2 per cent higher at $1.32 US.
"The delays to the Greek loan disbursement are likely to unsettle financial markets and increase the probability of a disorderly Greek debt default," MacKinnon said.
In Europe, Germany's DAX was down 3.1 per cent at 5,212 while the CAC-40 in France fell 2.3 per cent to 2,858. The FTSE 100 index of leading British shares fell 2.2 per cent to 4,964.
Dexia prompts sell-off
Shares in Franco-Belgian bank Dexia bore the brunt of the selling in Europe as investors grew increasingly concerned about its survival in its current form, despite government promises to prop up the bank and insure every cent of its deposits.
With the markets bracing for a Greek debt default soon, investors are concerned about what bonds Europe's banks are holding and banks themselves have become reluctant to lend to one another.
In Brussels, Dexia's share price was down 20 per cent, meaning it has lost more than half a billion euros of its market value. Dexia's stock began its plummet Monday after Moody's warned it could be downgraded, leading the board of directors to call an emergency meeting.
"Dexia's problems stress the point that for eurozone leaders the Greek crisis is less about Greece and more about the potential for it to spark a much more widespread banking and economic disaster," said Jane Foley, an analyst at Rabobank International.
Aside from developments surrounding Greece, traders will look for clues as to the state of the world's largest economy later Tuesday, when Federal Reserve chairman Ben Bernanke testifies before the joint economic committee in Washington.
A raft of U.S. economic data this week will culminate with Friday's non-farm payrolls report for September. The figures often set the tone in markets for a week or two and another weak number could reinforce concerns over the world's largest economy.
Earlier in Asia, Japan's Nikkei 225 fell 1.1 per cent to close at 8,456.12. South Korea's Kospi plunged 3.6 per cent to 1,706.19 after being closed Monday for a holiday, and Hong Kong's Hang Seng sank 3.4 per cent to 16,250.27.