Bad news from the U.S. financial sector resulted in a rough start for markets in Canada and abroad on Monday, and things continued to slide throughout the day.

As news spread that Lehman Brothers Holdings Inc. filed for bankruptcy protection, and that Merrill Lynch & Co. would be bought by Bank of America, the S&P 500 suffered its steepest drop since the first day of trading following the September 2001 terrorist attacks.

In New York, the S&P 500 fell 57.89 points, or 4.6%, to 1,192.70, while the Dow Jones industrial average plummeted 504.48 points, or 4.4%, to 10,917.51. The tech-heavy Nasdaq Composite dropped 81.36 points, 3.6%, to 2,179.91.

North of the border, markets didn’t fare much better. The S&P/TSX composite index fell 515.55 points, or 4.04%, to 12,254.03. The junior S&P/TSX Venture composite index fell 4.52% to 1,534.81.

All of the 10 main TSX groups fell on Monday.

The financials index declined 1.91%. CIBC shares fell a considerable 4.77% to close at $61.11 despite a statement that it doesn’t have “large exposure” to Lehman Brothers.

Fairfax Financial Holdings, meanwhile, was up 3.94% to close at $236.81, after reporting it would expand its European presence with the acquisition of a Polish reinsurer.

The materials goup fell 6.13%. Within the group, Goldcorp shares dropped 9.09% to $28.51 on news that it suspended mining at its Pamour project in Ontario.

Yet gold futures rose for a second day Monday as the worsening crisis on Wall Street raised demand for the safe-haven investment.

Gold for December delivery rose US$22.50, or 2.9%, to end at US$787 an ounce on the New York Mercantile Exchange. It surged US$25 in overnight electronic trading to US$789.50.

The TSX gold sub-index fell 5.41%.

The diversified metals group dropped 7.91%.

The energy index was down 6.05%. This included hefty drops by heavyweights Encana Corp., down 5.15% to $68, and Canadian Natural Resources, down 7.53% to $77.01.

Oil futures closed below US$100 per barrel on Monday, at their lowest level in seven months after assessments showed that Hurricane Ike caused only limited damage to key refineries in the Gulf of Mexico. Crude oil for October delivery fell US$5.47, or 5.4%, to close at US$95.71 a barrel on the Nymex.

Declining oil prices helped push the Canadian dollar down another 60¢ to US93.64¢ from US94.24¢ on Friday.

IE