Canada’s main stock index closed almost 3% lower yesterday and erased much of last week’s gains as troubles in the auto sector and the European banking industry rattled investor sentiment. Canadian banks and insurers led the indexes down as news of additional bank rescues in Europe unsettled investors who had bought up financial stocks in recent weeks amidst the stock market rally.

The drop in shares of Canadian banks and insurers followed similar drops by financial stocks overseas on news that Spain was forced into its 1st bank rescue since the global financial crisis began. Britain and Germany also shored up lenders.

Another major drag on investor sentiment was talk of bankruptcy for automakers General Motors and Chrysler by the Obama administration, which rejected the turnaround plans put forward by those companies and fired senior management. The S&P/TSX composite index closed down 2.55%, wiping out much of last week’s 3.7% gain. At one point during the day the TSX had fallen 4% to its lowest level since March 18th.

In the United States, Wall Street also tumbled giving up much of their gains from the previous week. Last week, the Dow Jones Industrial Index rose 6.8%, the S&P 500 gained 6.2% and the Nasdaq rose 6%. The Dow is up 6% for the month but remains down 11.4% for the year. The S&P 500 is still down nearly 13% this year and has dropped almost 50% since hitting its all time high in October 2007.

Regards,

Wilfred