Source: The Canadian Press

The Toronto stock market closed sharply lower Tuesday as investors grew increasingly skeptical about Europe’s attempts to contain the sovereign debt crisis.

Commodity stocks led the declines as investors sought the safety of the U.S. dollar, which in turn drove other currencies lower and depressed prices for oil and metals.

The S&P/TSX composite index backed off from its worst levels of the session but still closed down 165.65 points to 12,030.86 while the TSX Venture Exchange lost 43.13 points to 1,622.41.

“Until we get over this whole mess, we’re going to see this kind of thing,” said Fred Ketchen, manager of equity trading at Scotia Capital.

“You look for some reason why something should fail rather than for some reason why it should succeed. You just have a market that continues to show a great deal of nervousness.”

The euro, the currency used by 16 European Union members including Greece, hit its lowest level in a year, sliding to US$1.3011, down from US$1.3207 in late trading Monday.

The Canadian dollar also retreated as investors fled to the perceived safe-haven status of the U.S. currency, falling 1.39 cents to a five-week low of 97.56 cents US.

The euro has come under renewed pressure as European governments have scrambled to find a solution to prevent Greece from defaulting on its debts. A euro110-billion (US$145.62-billion) aid package is now in the works but financial markets aren’t feeling reassured the package will cure Europe’s debt crisis.

The ballooning size of the bailout has traders worrying that Europe would have an even tougher time rescuing a larger country such as Spain, which is also showing signs of weakness.

“Mayday! That fairly well describes the utterance of many a trader today upon perusing their screens,” said David Watt, vice-president and senior fixed income and currency strategist at RBC Capital Markets.

“Rumours that Spain would follow Greece in requesting financial aid were hotly denied, but contaminated market sentiment nonetheless.”

The June crude contract on the New York Mercantile Exchange closed down $3.45 at US$82.74 a barrel. The TSX energy sector lost 2.12% with Canadian Natural Resources (TSX:CNQ) down $1.99 at C$76.95.

Suncor Energy Inc. (TSX:SU) beat earnings expectations thanks to higher energy prices and its 2009 takeover of Petro-Canada. The Calgary-based company handed in quarterly earnings of $716 million, or 46 cents a share. That compared with a net loss of $189 million a year earlier, but its shares slipped 30 cents to $34.38.

The base metals sector dropped 4.28% as July copper on the Nymex declined 11 cents to US$3.18 a pound. Teck Resources (TSX:TCK.B) moved down $1.55 to $37.25 and HudBay Minerals (TSX:HBM) gave back 76 cents to $12.03.

Worries about how a debt default by Greece could impact the banking system sent the financials sector down 1.22%. Bank of Montreal (TSX:BMO) lost $1.08 to $62.29 and Royal Bank (TSX:RY) shed 69 cents to $61.73.

Industrials also wilted, with Canadian National Railways (TSX:CNR) backing off $1.13 to $60.13.

Investors looking for safety had earlier sent gold prices higher. But the June bullion contract on the Nymex ended the session down $14.10 at US$1,169.20 an ounce. However, gold stocks picked up by the end of the session with Barrick Gold Corp. (TSX:ABX) down 56 cents to $43.90 while Goldcorp Inc. (TSX:G) improved 70 cents to $43.86.

Agnico-Eagle Mines Ltd. (TSX:AEM) shares lost 35 cents to $63.70 after it said it had reached a definitive agreement to acquire all the shares of Comaplex Minerals Corp. (TSX:CMF) it doesn’t already own for about $650 million. Comaplex Minerals gained 41 cents to $10.80.

In New York, the Dow Jones industrial average tumbled 225.06 points to 10,926.77 as investors also fretted that a stronger dollar would cut into profits for U.S. companies that heavily rely on foreign operations.

The Nasdaq composite index lost 74.49 points to 2,424.25 while the S&P 500 index declined 28.66 points to 1,173.6.

Better-than-expected economic data failed to encourage buyers.

The U.S. Commerce Department said that orders to U.S. factories rose a surprising 1.3% in March with widespread gains in many industries offsetting a big drop in commercial aircraft.

And the National Association of Realtors seasonally adjusted index of sales agreements for previously occupied homes rose 5.3% from a month earlier to a reading of 102.9, the highest level since October.

In other earnings news, grocer Loblaw Co. (TSX:L) reported profits of $137 million or 50 cents per share in the last quarter — better than the 44 cents a share that analysts expected and up from $109 million or 40 cents per share a year ago.