TORONTO – The Toronto Stock Exchange opened sharply lower Monday as investors took in growing doubts that the United States can reach agreement on a solution to its deficit woes.
That added to concerns about European debt.
The S&P/TSX composite index shed 148.75 points to 11,743.69.
The Canadian dollar was down 0.61 of a cent at 96.74 cents US after earlier falling to 96.45 cents US, the lowest it has been since Oct. 7.
The January oil contract fell 77 cents to US$96.90 a barrel, December gold was down $11.10 to US$1,714 an ounce and the copper contract shed eight cents to US$3.32 a pound.
U.S. equities saw big drops as politicians south of the border approach a Nov. 23 deadline to agree on how to improve Washington’s finances by US$1.2 trillion over the coming decade. The main hurdle in the bipartisan panel’s negotiations was how much to raise in new taxes.
The Dow Jones industrial average was off 148.95 points to 11,647.21 and the Nasdaq fell 38.05 points to 2,534.47. The S&P index lost 20.7 points to 1,194.86.
The bipartisan panel’s failure would trigger about $1 trillion in automatic across-the-board spending cuts over nine years that some investors fear might hurt economic growth and job creation.
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The expected collapse of the talks revived market fears that politicians – whether in the U.S. or Europe – are often unable to take the decisive action required to reduce debt during a difficult period of economic slowdown.
In addition, American markets will be operating on a very short work week because of the U.S. Thanksgiving holiday on Thursday, which could leave many investors on the sidelines. Lower volumes and the potential for increased volatility could spell more selling pressure.
Meanwhile, Spain on Sunday became the third European country in as many weeks – after Greece and Italy – to change its government because of discontent generated by the debt crisis. It dumped its ruling Socialists for the conservative leadership of Mariano Rajoy, who inherits an economy racked by debt and nightmarish unemployment, which at more than 21 per cent is the highest among the 17 countries that use the euro.
Rajoy must lower Spain’s soaring borrowing costs with deficit-reducing measures while preventing an already moribund economy from heading into a double-dip recession.
Britain’s FTSE 100 dropped 1.8 per cent, while Germany’s DAX fell 2.3 per cent and France’s CAC-40 slid 2.3 per cent.
The Toronto market tumbled 384 points or 3.13 per cent last week as investors become more wary of making bets because of the uncertainty surrounding the debt crisis and frustration over an apparent lack of recognition by eurozone leaders that time is running out and the available options for dealing with it dwindle.
In Canadian corporate news, Valeant Pharmaceuticals International Inc. (TSX:VRX) says it has signed an agreement to acquire iNova, a private Australian pharmaceutical group in a deal that could be worth as much as $714 million. Valeant shares added 15 cents to $43.90.
Aecon Group Inc. (TSX:ARE) said it has a preliminary agreement worth $250-million to do interior work on a new process mill at the PotashCorp mine site in Saskatchewan. Its shares fell 1.7 per cent or 17 cents to $10.06.
Fairfax Financial Holdings Ltd. (TSX:FFH) has joined the bidding for Prime Restaurants Inc. (TSX:EAT) with an offer of $71 million for the company that operates such eateries as East Side Mario’s, Casey’s and D’Arcy McGee’s. Fairfax shares added $1.60 to $423.07, while Prime shares were up 10 per cent or 71 cents to $7.64.
Prime says it solicited the offer from Fairfax under a provision of its agreement with Cara, which offered last month to pay $59 million for the company. Under its agreement with Prime, Cara now has five business days to submit another bid or back away and receive a termination fee.