Malcolm Morrison, The Canadian Press
TORONTO - The Toronto stock market plunged almost 400 points Monday afternoon with energy stocks sustaining the most damage while oil prices dipped below US$50 for the first time in 5 1/2 years.
The S&P/TSX composite index tumbled 371.83 points to 14,381.82, paced by a 6.3 per cent drop in the energy sector.
The February crude oil contract in New York traded as low as US$49.95 a barrel, continuing the steady decline from summertime highs of US$107 a barrel as markets deal with a huge oversupply issue.
"Nobody wants to blink first in terms of cutting production," said Craig Fehr, Canadian markets strategist at Edward Jones in St. Louis.
"Investors (are) trying to figure out what the new equilibrium is for oil and commodities in general. So I think we will feel our way through that for quite some time."
Oil later recovered somewhat and was down $2.01 to $50.68 a barrel mid-afternoon.
A strengthening U.S. dollar also weighed on prices since a rising U.S. currency makes dollar-denominated crude more expensive to holders of other currencies.
The Canadian dollar was also at a 5 1/2 year low, down 0.11 of a cent to 84.91 cents US.
The energy sector selloff also hit New York markets hard at the start of a busy week for economic data, capped on Friday by the release of the U.S. government's employment report for December.
The Dow Jones industrials dropped 298.65 points to 17,534.34, the Nasdaq shed 67.4 points to 4,659.41 while the S&P 500 index was 35.11 points lower to 2,023.09.
Commodity prices were also depressed as the U.S. currency strengthened and the euro fell to the lowest level since March 2006, amid fresh questions about whether Greece will exit the eurozone following elections later this month.
The U.S. dollar strengthened as traders weigh the outcome of upcoming elections in Greece that might be won by the anti-austerity Syriza party. Such a victory would raise doubts about whether the country will stick to the terms of its international bailout and stay in the euro bloc. Germany has warned Greece against reneging on the bailout conditions should Syriza win this month's general election.
Greek jitters helped push the euro down as low as US$1.1864 earlier Monday morning.
Elsewhere on the TSX, the base metals sector was down 4.3 per cent while March copper fell six cents to US$2.76 a pound.
Most sectors were lower with financials down 2.3 per cent while industrials shed 2.5 per cent.
"I think it‘s the knock-on effects to some degree," added Fehr, observing that there are worries about slowing economies in China and Europe.
"My broader takeaway from all this is, there‘s really no one clear cut story to the effects that we will see on global markets as it relates to commodity prices. The consumer benefits, energy sensitive companies will feel the negative impacts of this _ I think it will take awhile for all this to really shake out."
The gold sector was the leading advancer, up 1.5 per cent as February bullion added $12.20 to US$1,198.40 an ounce.