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The Toronto stock market plunged almost 400 points Tuesday, its worst day in almost three years

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02/27/2007 05:58 PM
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The Toronto stock market plunged almost 400 points Tuesday, its worst day in almost three years
TORONTO (CP) - The Toronto stock market plunged almost 400 points Tuesday, its worst day in almost three years, as a selloff on China's main stock market raised fears about the economy and future demand for commodities - the items that have yielded strong gains for four years.

The S&P/TSX composite index closed with a loss of 364.35 points to 13,040.11, down 2.7 per cent, after the Shanghai composite index, which had surged 174 per cent since mid-2005, tumbled 8.8 per cent amid speculation about new austerity measures from the Chinese government to slow sizzling economic growth.

The junior TSX Venture Exchange dropped 164.67 points to 3,109.97, while the Canadian dollar surrendered 0.43 of a cent to 85.73 cents US.

New York markets also sustained sharp losses with the blue-chip Dow Jones industrial average falling 416.02 points to 12,216.24 amid sentiment further eroded by negative economic news.

The Nasdaq composite index dropped 96.65 points to 2,407.87 while the S&P 500 index declined 50.33 to 1,399.04.

TSX losses were right across the board, led by steep declines in mining companies as investors worried about a possible sharp drop in demand for metals and oil.

What surprised some market experts was the breadth of the decline with even normally defensive stocks getting caught in the selloff.

"You're just seeing people cashing out. The biggest group in the index is financials - it's the second hardest hit; they're like taking whatever they can and selling it," observed Chyanne Fyckes, chief investment manager at Stone Asset Management.

"They're looking for liquidity, clearly that's what they're doing. Even things like telecom stocks are getting hit very badly."

But analysts pointed out that the Shanghai market had been vastly overvalued.

"You will see the resource stocks sell off short term. But long term, we don't think it's a major negative. It is actually encouraging in a way that China's having its bubble deflated now," said Gavin Graham, director of investments with Guardian Group of Funds.

"What they don't want, with the Olympics in 16 months, is uncertainty and unhappiness anytime during 2008."

It may be better for the Chinese to deflate the bubble now and build on strength next year, he said.

The TSX metals and mining sector was down 5.3 per cent. First Quantum Minerals Ltd. (TSX:FM) moved $3.22 lower to $69.16 and Teck Cominco (TSX:TCK.B) gave back $3.01 to $82.50.

The April contract for light sweet crude on the New York Mercantile Exchange was up seven cents to US$61.47 a barrel but the TSX energy sector slid 2.15 per cent with EnCana Corp. (TSX:ECA) declining 97 cents to $56.33 and Petro-Canada (TSX:PCA) off $1.00 to $43.94.

The April gold contract on the Nymex fell $2.60 to US$687.20 an ounce, taking the Toronto gold sector down six per cent. Kinross Gold Corp. (TSX:K) faded $1.15 to $15.84.

Non-resource companies joined in the rout, and declining stocks swamped advances 1,365 to 316 with 194 unchanged on TSX volume of 489 million shares worth $8.6 billion.

The financial sector declined 1.3 per cent, with Royal Bank (TSX:RY) lower by $1.02 at $54.60.

In addition to the Chinese jitters, economic data weighed on the markets. Orders to U.S. factories for big-ticket goods fell 7.8 per cent in January.

This exacerbated concerns about the U.S. economy, which had intensified Monday when former Federal Reserve chairman Alan Greenspan raised the possibility of a recession this year.

In other U.S. data, sales of existing homes rose in January by three per cent, but home prices declined for a sixth straight month.

While Shanghai sold off, other Asian markets racked up modest losses. Tokyo's Nikkei index shed 95.43 points, or 0.5 per cent, to 18,119.92 after its highest close in nearly seven years on Monday. Hong Kong's blue-chip Hang Seng index dropped 360.08 points, or 1.8 per cent, to 20,147.87.

"You would expect tomorrow you might see a bounceback (in the Shanghai market)," said Fyckes.

"I think what people are concerned about is that you might see it continue because it has been so overdone."

[link to ca.news.yahoo.com]
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