The benchmark index of the Toronto stock market endured one of its bigger one-day point losses on Tuesday, following a major stock sell-off in China.

S&P/TSX composite index 3-month history

The S&P/TSX composite index fell 364 points to end the day at 13,040 — a drop of 2.7 per cent. It was the biggest one-day percentage drop in almost three years. At its worst point, the index was down 457 points. Every sector was in negative territory, with resource stocks leading the charge down.

As dramatic as that drop is, the main Toronto index is still above where it was just eight weeks ago at the close of 2006. Leading up to Tuesday, the Toronto market had set seven record highs in nine trading sessions. Toronto's benchmark index has doubled since October 2002 as it benefited from a steady rise in commodity prices.

In New York, the drops were similarly large. The Dow Jones industrial average had its worst day in almost four years — a loss of 416 points, or 3.3 per cent. It was down almost 550 points at its lowest level of the day — a drop of 4.3 per cent. The Nasdaq composite index plunged 96 points to 2,432.

There were few safe havens for market investors. Of the 500 U.S. companies represented in the S&P500 index, 498 ended the day lower. All 30 Dow stocks fell.

Analysts estimated that the paper loss in U.S. stocks alone came to $600 billion US on Tuesday. 

The big question now is whether this was a one-day wonder or whether the slide will continue on Wednesday and beyond.

Traders work the floor of the New York Stock Exchange on Tuesday in New York. Stocks had their worst day of trading in almost four years.
(Frank Franklin II/Associated Press)

"I think we are vulnerable to a period of market weakness," Laura Wallace, the managing director of Coleford Investment Management, told CBC News.

"Not so much because valuations are stretched … but because we've gone a long time without a correction."

The losses followed an almost nine per cent plunge overnight in Chinese stocks, their biggest drop in a decade. Investors are worried that a slowdown in China's booming economy could crimp demand for the West's goods — especially its commodities.

Shanghai's composite index tumbled 8.8 per cent on Tuesday to close at 2,771.79, its largest percentage decline since the death of Communist party elder Deng Xiaoping in February 1997.

Shanghai's stock index had hit a record high just the day before, after doubling in the past year. Some analysts blamed profit taking after such an explosive run-up in share prices. Rumours were also flying that Beijing might bring in a capital gains tax to try to rein in the sizzling Chinese economy.   

In Hong Kong, the benchmark Hang Seng index fell 1.8 per cent, while Singapore's Straits Times index dropped 2.3 per cent. The benchmark index of the London stock market slipped 2.5 per cent, while France lost 2.9 per cent and Germany's DAX lost 2.4 per cent.