The Toronto stock market tumbled more than 200 points Tuesday as commodity prices retreated amid U.S. earnings disappointments and a fresh round of worry centred on Europe's debt crisis.
The S&P/TSX composite index fell 221.33 points to 12,182.21 with losses spread across all sectors while the TSX Venture Exchange lost 20.75 points to 1,287.66.
The Canadian dollar reversed early losses as the Bank of Canada said it was keeping its key rate unchanged at one per cent while keeping intact language warning that it will raise rates at some point.
The currency rose 0.11 of a cent to 100.86 cents US. It had earlier traded around 100.35 cents, its lowest level since early August, amid speculation that the central bank's statement would take a less hawkish stance on raising rates.
Instead the bank maintained the key message of previous statements — that there will need to be modest rate hikes — with the slight modification that added "over time" to the equation.
In a speech last week, Carney had omitted a statement that "modest withdrawal of money policy will likely be required" — leading observers to think the central bank was signalling a more definitive change to its policy.
"The key point is they have kept their mild tightening bias. There was just no prospect of rate cuts, that's off the table. The only issue here is when they start raising rates," said BMO Capital Markets deputy chief economist Doug Porter.
The bank also notes it will consider the health of the household sector in setting monetary policy, something it hasn't done in previous interest rate announcements
"In other words, how the growth in household debt shapes up in the weeks and months ahead will determine whether the bank starts raising rates or not," added Porter.
There was also major acquisition news from the Canadian banking sector.
Royal Bank of Canada (TSX:RY) confirmed it will acquire the Canadian auto finance and deposit business of Ally Financial Inc. The bank says its net cost for the deal will be about $1.4 billion but its shares got caught in the overall market downdraft and lost $1.70 to $56.90.
And U.S. discount retailer Target is selling its credit card portfolio to TD Bank Group (TSX:TD) for about $5.9 billion. TD also agreed to a seven-year deal to underwrite, fund and own the retailer's future credit card and Visa receivables in the United States. TD stock shed $1.15 to $81.77.
U.S. markets were sharply lower in the wake of disappointments from Dow heavyweights DuPont and 3M.
The Dow industrials plunged 208.34 points to 13,137.55, the Nasdaq was down 30.41 points to 2,986.55 while the S&P 500 index fell 20.72 points to 1,413.1.
Chemical maker DuPont reported net income of US$10 million Tuesday, or a penny per share. Excluding one-time items, DuPont earned 44 cents per share, compared with 69 cents per share for last year's third quarter. The results fell short of the average estimate of 46 cents per share, and DuPont's stock slid eight per cent to US$45.75.
And conglomerate 3M said its third-quarter profit edged up to $1.16 billion, or $1.65 a share, which met estimates. Sales dipped 0.4 per cent to $7.5 billion, which missed expectations of $7.63 billion. 3M also cut its 2012 profit estimate to a range of $6.27 to $6.35 a share, down from an earlier 2012 view of $6.35 to $6.50 a share, to reflect "current economic realities". 3M makes everything from Post-it notes and Scotch tape to roofing granules, coatings for LCD screens and traffic sign coatings. The variety of its businesses and its worldwide footprint make it an economic bellwether and its shares fell $2.46 to US$90.07.
The news was more positive from Canadian National Railways (TSX:CNR), which said after the close Monday it was maintaining its earnings growth outlook for 2012 despite anticipating a difficult end to the year due to a weak economy.
CN said it earned $664 million, or $1.52 per diluted and adjusted share, for the period ended Sept. 30., beating analyst estimates by a penny. But its shares were down $2.81 to $84.26.
Expectations for this earnings season were already muted with analysts expecting the first year-over-year drop since 2009.
Analysts at Credit Suisse said in a report Tuesday that "roughly 25 per cent of the way through the U.S. reporting season, annual earnings per share growth is broadly flat."
Commodities weakened amid a move by Moody's Investor Services to downgrade five Spanish regions to below investment grade.
Spain has been the flashpoint of the eurozone's credit crisis as the country endures its second recession in three years with near 25 per cent unemployment after the property market collapsed in the wake of the 2008 financial crisis, at the same time crippling the country's banks.
The base metals sector dropped almost three per cent as copper prices fell back with the December contract on the Nymex down six cents at US$3.56 a pound. Teck Resources (TSX:TCK.B) shed 90 cents to $30.43.
Oil prices headed lower with the December contract on the New York Mercantile Exchange losing $1.97 to US$86.68 a barrel as a major North American pipeline got set to reopen.
TransCanada is expected to soon restart its 3,380-kilometre Keystone pipeline, shut last Wednesday after tests showed possible safety issues. The pipeline carries about 590,000 barrels of crude per day from Canada to facilities in the U.S. Midwest. TransCanada shares (TSX:TRP) lost 57 cents to $43.35. The energy sector lost 2.35 per cent as Suncor Energy (TSX:SU) gave back 97 cents to $32.41.
December bullion gave back $14.60 to US$1,711.70 an ounce and the gold sector lost 2.45 per cent. Goldcorp Inc. (TSX:G) faded $1.12 to US$42.62.
Tech stocks also fell back with Research In Motion Ltd. (TSX:RIM) down 16 cents to $7.49.
European bourses were also sharply lower with London's FTSE 100 index down 1.4 per cent, Frankfurt's DAX off 1.94 per cent and the Paris CAC 40 down 2.17 per cent.