North American markets took investors on a wild ride Friday as the Toronto Stock Exchange closed with a loss of more than 200 points, while the Dow, after seesawing 400 points in less than an hour, finished with a gain.

Markets opened higher after a stronger than expected report on U.S. employment for July, then retreated sharply before gaining again as European leaders reached a deal with Italy on fiscal reforms that promised to ease concerns about the spread of Europe's debt crisis.

Toward the end of the session, most indices began falling again.

Under the terms of the deal, the Italian government has agreed to speed up its attempts to balance its budget.

In return, reports said, the European Central Bank will buy Italian and Spanish bonds to pump cash into their economies.

In Toronto, the S&P/TSX composite index closed down 217.96 points, or 1.8 per cent, at 12,162.17. The index had been down almost 500 points in late morning trading. It lost 436 points on Thursday. Volume was 347 million shares, almost twice the usual.

In New York, the Dow Jones industrial average lurched wildly, down by as much as 245 points and up as much as 172 within an hour. It closed up 60.93 points, or 0.5 per cent, at 11,444.61 on heavy volume of eight billion shares.

The Dow closed Thursday down 512.76 points, at 11,383.68. It was the steepest point decline since Dec. 1, 2008, and the ninth-worst by points for the Dow.

Volatility was also the hallmark of the day's trading on the Nasdaq, which was down 23.98 points, or 0.9 per cent, at 2,532.41, while the S&P 500 fell 0.69 of a point to 1,199.38. The Nasdaq is down more than eight per cent on the week.

European leaders confer

European leaders had interrupted their vacations to find a way to keep the Continent's economic turmoil from pushing Spain and Italy to a financial collapse that would further hobble an already-waning global recovery.

German Chancellor Angela Merkel, vacationing in the Italian Alps, and French President Nicolas Sarkozy, on the French Riviera, interrupted their summer holidays for a phone conference on the eurozone crisis, Merkel's office said.

Sarkozy's office said he would also speak with Spanish Prime Minister Jose Luis Rodriguez Zapatero.

The worry is that Europe's debt crisis is spiralling out of control as investors lose faith in the countries' ability to get a handle on their debts. Investor doubts are also growing about the whole European decision-making process.

On a positive note, the U.S. Labour Department's non-farm payrolls report said employment rose by 117,000 in July, higher than the approximately 80,000 additional jobs that economists had expected. Also, the jobless rate edged down 0.1 per cent to 9.1 per cent.

The data came out a day after pessimism over the U.S. economy and Europe's debt problems pushed markets to major losses.

Following the Labour Department's report, U.S. President Barack Obama called on Congress to take measures when it returns in September to further ease unemployment. He called for extensions to a payroll tax-credit program meant to spur job creation and to unemployment insurance benefits. Obama also called for programs to employ construction workers on infrastructure rebuilding.

Loonie gains

Amid Friday's market turmoil, the Canadian dollar gained 0.15 of a cent to 102.24 cents US.

The September oil contract on the New York Mercantile Exchange finished with a gain of 25 cents at $86.88 US, after Thursday's plunge of more than $5.

December gold closed down $7.20 at $1,651.80 US an ounce.

European markets closed before word of the Italian budget deal broke at 11:30 a.m. ET. Italy's borrowing costs rose above Spain's on Friday for the first time in more than a year.

London's FTSE 100 index closed down 2.5 per cent, Frankfurt's DAX lost 2.8 per cent while the Paris CAC 40 dropped 1.3 per cent.

Japan's Nikkei 225 stock average slid 3.7 per cent, Hong Kong's Hang Seng dived 4.3 per cent while China's Shanghai Composite Index lost 2.2 per cent.

Biggest TSX drops since Oct. 2008:    
Date   Percentage  Point drop
1. Dec. 1, 2008  -9.1% -864.41
2.  Nov. 20, 2008  -9.0% -765.80
3. Oct. 27, 2008 -8.1% -756.75
4. Sept. 29, 2008 -7.5%  -840.93
5. Oct. 2, 2008 -6.9%  -813.97 
6. Oct. 15, 2008  -6.3% -631.81
7. Oct 22, 2008 -5.7% -558.92 
8. Oct. 10, 2008 -5.6%  -535.02
9. Nov. 12, 2008 -5.3%  -501.43
10. Oct. 7, 2008  -5.3% -400.88
(Source: TMX)    
With files from The Canadian Press