Source: The Canadian Press

Increasing nervousness about the European debt crisis sent the Toronto stock market and the Canadian dollar tumbling Thursday.

The S&P/TSX composite index dropped 259.82 points or 2.235 to 11,405.95, led by losses in commodity stocks. The TSX Venture Exchange fell back 64.28 points to 1,421.81.

The Canadian dollar fell 2.12 cents to 93.65 cents US — its lowest level since early February — as investors continued to shun risk and bought heavily into U.S. Treasury bills. The loonie was also pressured by falling commodity prices, plunging as much as 2.5 cents earlier in the session before recovering a little.

New York markets also plummeted, with additional pressure coming from data that showed jobless insurance claims rose unexpectedly in the United States last week.

The Dow Jones industrial average dropped 376.36 points or 3.65 to 10,068.01.

However, the euro, which has become a key indicator of confidence in the continent’s ability to contain growing debt problems in countries like Greece, Portugal and Spain, had one of its rare positive sessions, rising 1.46 US cents from late Wednesday to US$1.2517. The currency had touched a four-year low of $1.2146 at one point Wednesday.

“The euro has suffered so much over the last few weeks, perhaps we shouldn’t be forcing anything more onto it,” said Eric Lascelles, chief strategist at TD Securities.

“And keep in mind,” he added, “Europe is doing its best to stop speculation of the euro and some of these other financial products.”

The TSX energy sector lost 2.245 as the July crude contract on the New York Mercantile Exchange dropped $1.68 to US$70.80 a barrel. Suncor Energy (TSX:SU) was down 70 cents at C$30.45 and Canadian Natural Resources (TSX:CNQ) declined 53 cents to C$34.27.

Crude has plunged from US$87 a barrel earlier this month as a debt crisis in Europe has hammered the euro and threatens to undermine economic growth.

Other commodities lost ground as the June gold contract on the Nymex slipped $4.50 to US$1,188.60 an ounce, sending gold stocks lower. Barrick Gold Corp. (TSX:ABX) faded 63 cents to C$43.83.

The base metals sector fell 45 as July copper slipped a penny to US$2.94 a pound, the metal’s fourth straight day of losses.

On the TSX, Teck Resources (TSX:TCK.B) lost 72 cents to C$31.96 while Labrador Iron Mines Holdings (TSX:LIM) shed 51 cents or 9.435 to C$4.90.

Railway stocks led the industrials sector lower as Canadian National Railways (TSX:CNR) gave back $1.26 to $58.84.

The financials sector was also a major decliner, down 2.645 with Royal Bank (TSX:RY) down $1.84 at $58.69 while Scotiabank (TSX:BNS) lost $1.27 to $49.

The negative tone on markets has sent the TSX lower for six consecutive sessions, carving almost 800 points or more than 6% from the main index, leaving it 340 points below where it started the 2010 trading year.

A US$1-trillion aid package from the European Union and the International Monetary Fund to help countries deal with huge government debt levels has failed to reassure investors. They are concerned that the strict financial measures tied to the bailout could curtail an economic rebound and even lead to the demise of the euro.

A surprise, unilateral move by Germany earlier this week to halt a certain type of short selling, designed to take pressure off the euro, instead added more selling pressure to stock markets, with analysts saying the move looked desperate.

“It looks like they panicked,” said Colin Cieszynski, market analyst at CMC Markets Canada.

“Bringing in this short selling ban all of a sudden raises questions about Germany to the extent of, is there something they know that we don’t? Why are they suddenly acting on their own and doing this? And it’s probably nothing but they probably took a step that they shouldn’t have.”

But concern goes beyond Europe — investors are also worried that China might take steps that will limit its economic growth, which would also affect the global recovery.

“Investors are in the midst of a major de-risking period due to debt concerns in Europe and signs of a slowdown in China, and now that’s accelerating,” said Peter Boockvar, equity strategist at Miller Tabak in New York. “The fundamental concern right now are these threats to global growth.”

Elsewhere in New York, the Nasdaq composite index dropped 94.36 points to 2,204.01 as the U.S. Labour Department said initial claims for jobless benefits rose by 25,000 to 471,000 last week.