The Toronto stock exchange took its steepest nose-dive in more than two years Thursday after Japan invested heavily in U.S. dollars and gloomy economic sentiments emerged from Europe.
The S&P/TSX composite index lost 435.89 points in trading, to end the day at 12,380.13.
The drop marks one of the biggest declines since U.S. financial services firm Lehman Brothers collapsed in 2008, triggering a global recession.
In New York, the Dow Jones industrial average fell 512.76 points to 11,383.68. Meanwhile, the Nasdaq dropped 136.68 to 2,556.39.
Earlier Thursday, in a move to devalue its own currency to boost exports, the Bank of Japan invested heavily in the U.S. dollar. That caused the greenback's value to rise, in turn pushing down the loonie.
The loonie finished at 102.69 cents U.S. on Thursday, which is down 1.80 cents from Wednesday.
The downward trend continued as Asian markets opened early Friday morning. Japan's Nikkei 225 stock average fell 3.4 per cent to 9,335.26, while Hong Kong's Hang Seng plummeted 4.1 per cent to 20,989.28.
Paul Taylor, chief investment officer of BMO Harris Private Banking, said the market jitters are due to job numbers in the U.S. and the recent agreement to raise the debt ceiling in Washington.
"The question now is, is it a good agreement?" Taylor said.
Some analysts are questioning whether a double-dip recession is again possible.
"I'd like to think that the momentum that we've carried into Q2 and Q3 of 2011 is strong enough that we can avoid that worst case scenario," he said.
In Europe, Jean Claude Trichet, president of the European Central Bank, spoke in gloomy terms Thursday about sluggish conditions in Europe and "headwinds" in other parts of the world.
"Investors took that cue along with Japan and its activities and some data this morning on the U.S. jobs market and mixed it into a pot and thought to themselves 'there's a good chance the global recession might come back a lot sooner than expected,'" Baccardax said.
New numbers released Thursday showed U.S. jobless insurance claims were only down by about 1,000 jobs last week.
Investors will be looking toward economic data released Friday for more perspective on the direction of the U.S. economy, when the non-farm payrolls report for July is expected.
As recently as two weeks ago investors were concerned the U.S. economy had slowed down. Since then, a host of economic data has raised worries about the economy slipping back into recession.
Sid Mokhtari, market technician at CIBC World Markets, told The Canadian Press that manufacturing, consumer spending and hiring by private companies are below levels that are consistent with a healthy economy.
"It has now become completely about the economy," he said.
"The evidence suggests there is now the risk of a serious economic slowdown."
Canadian jobless figures for July will also be released on Friday and economists expect about 20,000 jobs were created.
Oil prices on Thursday dropped for a fifth day by US$5.30 to $86.63.
With files from The Associated Press
