Toronto stocks closed sharply lower Monday as troubles at North American automakers and European banks spooked investors.

The S&P/TSX composite index fell 224.84 points, or 2.55%, at 8,596.22, wiping out much of last week’s 3.7% gain.

The benchmark index, which had edged into positive territory last week for the year to date, has now fallen 4.4% in 2009.

Talk of bankruptcy for automakers General Motors and Chrysler by the Obama administration, which rejected the turnaround plans put forward by those companies, dragged investor confidence lower.

That was followed by comments from Canada that plans set out by the Canadian branches the two automakers do not go far enough to make them viable.

The TSX financial sector followed European banking shares lower on news Spain was forced into its first bank rescue since the global financial crisis began.

Shares of insurer Manulife Financial, dropped 8.5% to close at $13.72, while Royal Bank of Canada followed with a drop of 3.2% to $35.80.

Energy stocks were down after the price of crude oil fell below the threshold of US$50 a barrel again, to US$48.41, down US$3.97.

Suncor Energy Inc. fell 3.8%, Talisman Energy Inc. fell 1.5% and Canadian Natural Resources Ltd. fell 5.3%.

The junior S&P/TSX Venture composite index fell 15.82 points, or 1.65%, to finish at 945.20.

The Canadian dollar slid 1.56¢ against the U.S. greenback to close at US79.25¢.

In New York, U.S. stocks tumbled as the U.S. administration forced out General Motors Corp’s CEO, pushed Chrysler LLC toward a merger with Fiat and threatened bankruptcy for both. Both companies received a government bailout in December.

General Motors Corp. shares fell 25.4% to US$2.70 a share.

The Dow Jones industrial average lost 254.16 points, or 3.27%, to 7,522.02. The S&P 500 fell 28.41 points, or 3.48%, to 787.53. The Nasdaq composite index shed 43.40 points, or 2.81%, to 1,501.80.

Before today’s sell-off, stocks had rallied around 20% after hitting fresh 12-year lows in early March.

IE