TORONTO - Stock markets tumbled Monday as the rally that has sent equities surging for most of this month ground to a halt amid a jolt of worry over General Motors and Chrysler.
Investors feared the automakers may be forced into bankruptcy after the U.S. government said the plans they've submitted are not acceptable to receive more federal bailout money. GM chairman and CEO Rick Wagoner was forced out and Chrysler was given 30 days to complete a partnership with Italian automaker Fiat.
Financial stocks slumped in Toronto, joined by energy and base-metal shares, as the price of crude oil fell almost US$4 a barrel.
The S&P/TSX composite index dropped as much as 368 points but the retreat moderated in the final minutes and the benchmark index closed with a loss of 224.84 points or 2.6 per cent at 8,596.22.
This followed a gain of more than 16 per cent over the course of the rally that took off March 10.
New York's Dow Jones industrial average fell 254.16 points to 7,522.02, after the blue-chip index had surged 20 per cent in the March runup.
U.S. president Barack Obama raised the possibility of a controlled bankruptcy for GM or Chrysler or both to help them "restructure quickly and emerge stronger."
The federal and Ontario governments also said they have not seen realistic restructuring plans, but they will go ahead with up to C$4 billion in loans to keep the Canadian divisions of GM and Chrysler afloat.
Beyond the automakers, "there were also the comments over the weekend from (U.S. Treasury Secretary Timothy) Geithner that some U.S. banks still need big capital infusions -- and I also just think the expectation that the pullback was coming," said Gareth Watson, Canadian equity adviser at ScotiaMcLeod.
"Sometimes, unfortunately, folks need a reason to sell and they haven't necessarily been given it over the past week or so -- other than the reason of just saying that we have rallied."
Stock market volatility helped send the Canadian dollar sharply lower, closing down 1.56 cents to 79.25 cents US as anxious investors flocked to the U.S. currency.
"The increase in risk aversion has weighed on the Canadian dollar," said George Davis, chief technical analyst at RBC Capital Markets.
"Despite all the problems that are filtering their way through the U.S. economy right now, the U.S. dollar is still the world's primary reserve currency."
The TSX Venture Exchange fell 15.82 points to 945.2.
The Nasdaq composite index, up 22 per cent over the last couple of weeks, slid 43.4 points to 1,501.8 while the S&P 500 index surrendered 28.41 points to 787.53.
General Motors shares plunged 25 per cent to US$2.70 in New York, and Canadian auto parts makers were down sharply in Toronto. Magna International (TSX:MG.A) fell $1.36 to C$33.52 while Linamar Corp. (TSX:LNR) lost 32 cents to $2.60.
More broadly, investors were skeptical ahead of Thursday's meeting in London of the leaders of the G20 major industrialized and developing countries. Earlier hopes of a co-ordinated fiscal boost appear to have been dashed by reluctance in many European governments.
Meanwhile, Geithner isn't ruling out seeking more money from Congress to coax banks into lending money. A bailout fund for U.S. banks still has $135 billion left but Geithner said further money might be needed, despite public frustration with seemingly bottomless bank rescues.
The TSX financial sector backed off 4.3 per cent. Royal Bank (TSX:RY) fell $1.19 to $35.80 while Scotiabank (TSX:BNS) lost $1.30 to $30.58.
The energy sector fell 3.7 per cent as the rally on oil markets ran out of gas. The May crude contract on the New York Mercantile Exchange fell $3.97 to US$48.41 a barrel. EnCana Corp. (TSX:ECA) gave back $1.01 to C$50.99 and Suncor Inc. (TSX:SU) fell $1.11 to $28.25.
The base-metals sector retreated eight per cent with Teck Cominco Ltd. (TSX:TCK.B) down 86 cents to $6.87.
FNX Mining Company Inc (TSX:FNX) retreated 68 cents or 14 per cent to $4.17 after a fourth-quarter loss of $397.4 million.
The gold sector was the only positive sector, rising 1.3 per cent even as the April bullion contract on the New York Mercantile Exchange declined $7.70 to US$915.50 an ounce. Barrick Gold Corp. advanced $1.18 to $40.88.
