Source: The Canadian Press

Fears that the effects of a government debt crisis could push Europe into a severe economic downturn sent the Toronto stock market tumbling Monday.

The S&P /TSX composite index dropped 201.97 points to 11,813 in a broad-based selloff. The TSX Venture Exchange was down 38.44 points at 1,554.67.

“The theme really comes back to the credit crisis — even though solutions have been put forward and implemented they are still, it seems, to be a stop-gap measure,’’ said Ian Nakamoto, director of research at MacDougall, MacDougall and MacTier.

“And to get full resolution to these issues probably means more severe government austerity programs.’’

The U.S. dollar was higher as investors moved into the perceived safe haven status of the greenback, which in turn pushed the euro to a four-year low of US$1.2233. It later recovered to US$1.2382. The Canadian dollar also lost ground, falling 0.19 of a cent to 96.74 cents US.

Oil prices were again lower after the strengthening U.S. currency and signs of rising supplies pushed crude down almost 5% last week. Oil, which is priced in U.S. dollars, becomes more expensive to investors holding other currencies when the greenback advances.

The June contract on the New York Mercantile Exchange was off $1.53 at US$70.08 a barrel after going below the US$69 level late in the morning for the first time since February. Oil prices have plunged 20% in the past two weeks.

The TSX energy sector was down 2% as Canadian Natural Resources (TSX:CNQ) fell $1.23 to C$71.37 while Suncor Energy (TSX:SU) lost 80 cents to C$31.26.

The base metals sector was down 5.8% as the July copper contract on the Nymex lost ground for a second day, down 20 cents to US$2.93 a pound as concern over growth in China also depressed metal prices.

China’s premier, Wen Jiabao, has emphasized the need to control surging housed prices, which in turn has again sparked concern the government could tighten lending and slow the Chinese economy.

A strong Asian rebound has helped the global economy start to recover from recession and, in particular, has boosted commodity prices and oil and mining stocks on the TSX.

Teck Resources (TSX:TCK.B) declined $2.23 to C$33.11 while HudBay Minerals (TSX:HBM) fell 36 cents to C$10.92.

Gold prices were slightly higher but well off the record levels hit late last week on worries about the viability of the euro. The June bullion contract in New York was ahead 30 cents to US$1,228.10 an ounce after hitting an intraday high of US$1,249.70 Friday. However, gold stocks also sold off and Barrick Gold Corp. (TSX:ABX) faded $1.21 to C$45.87 while Kinross Gold Corp. (TSX:K) shed 57 cents to C$19.

The industrials sector stepped back 1.67% with Bombardier Inc. (TSX:BBD.B) down 18 cents at $5.21 while Canadian National Railways (TSX:CNR) declined 55 cents to $60.73.

Financials were also a drag with Scotiabank (TSX:BNS) down $1.39 to $50.94.

Markets have been volatile for weeks, initially on worries that Greece would find itself effectively frozen out of bond markets as their huge budget deficits would result in traders demanding huge premiums to roll over debt.

Those fears were temporarily put on hold a week ago following the unveiling of a massive US$1-trillion bailout program a week ago which would give European countries facing mounting debt problems access to cheap loans.

But some traders feel that the package might not be big enough. German Chancellor Angela Merkel conceded over the weekend that the package was no more than a Band-Aid solution to the problems afflicting a number of eurozone countries.

Investors are also concerned that tough austerity measures taken by countries such as Greece, Portugal and Spain could drive Europe into recession.

New York indexes shook off early losses to close little changed as investors looking for signs of an improving domestic economy received mixed data.

The Dow Jones industrial average came back from a 184-point slide to close up 5.67 points at 10,625.83 as home-improvement retailer Lowe’s reported a better-than-expected first-quarter profit and raised its guidance for the year. But the outlook was shy of analysts’ expectations, which sent its shares down 81 cents to US$25.26.

The Empire State manufacturing index also disappointed traders. The index, which measures manufacturing activity in the New York region, plummeted to 19.11 this month from 31.86 in April. Economists polled by Thomson Reuters, on average, had forecast a reading of 30.00 for May.