Source: The Canadian Press

The Toronto stock market fell back Wednesday as German moves to support the euro by cracking down on speculators failed to reassure investors that the European Union can contain a government debt crisis.

The German move rattled markets in part because it decided to go it alone.

It also suggested that policy-makers might be grasping at straws to stem flagging confidence about the ability of European governments to pay off their heavy debt amid slow growth.

The S&P/TSX composite index closed down 98.74 points at 11,665.77 after Germany’s regulator announced it was banning so-called naked short selling of eurozone government bonds, as well as shares in 10 key German financial institutions until March 31, 2011.

In a typical short sale, a trader sells borrowed shares in hopes of buying them cheaper later and profiting on the difference. A “naked” short is when traders sell shares without borrowing them first. The euro initially responded badly to the German move, dropping to a four-year low of US$1.2143 before recovering to trade at $1.2371.

There were also big swings in other currencies and commodities as investors digested the action by the eurozone’s biggest economy.

The Canadian dollar was down 0.66 of a cent at 95.77 cents US after earlier falling as much as 1.54 cents US.

The TSX Venture Exchange moved 54.37 points lower to 1,486.09.

The June crude contract on the New York Mercantile Exchange finished up 46 cents at US$69.87 a barrel after earlier falling to $67.90. Oil has plunged more than 20% since climbing to an 18-month high of US$87.15 a barrel on May 3 on demand concerns and the rising greenback.

However, most of the trading already has moved away from the June contract, which is set to expire Thursday. The July contract fell 22 cents to US$72.48 a barrel.

Investors also took advantage of the markup between the June and July oil contracts. The spread between the two contracts means investors can make money by simply storing their June oil and selling it a month later.

As a result, supplies at the benchmark delivery point in Cushing, Okla., have bulged to an all-time high. That forces prices even lower.

The TSX energy sector slipped 0.23% as Canadian Natural Resources lost 59 cents to C$34.80.

TSX gold stocks were the biggest percentage decliners as the June bullion contract on the Nymex was down $21.50 at US$1,193.10 an ounce. Gold had run up to an intraday record high of just under US$1,250 on Friday. Barrick Gold Corp. (TSX:ABX) faded $1.64 to C$44.46 while Kinross Gold Corp. (TSX:K) lost 77 cents to C$18.05.

The July copper contract in New York was also off early lows, down seven cents at US$2.96 a pound. The base metals sector was down 2.43% as Teck Resources (TSX:TCK.B) dropped 85 cents to C$32.68 and First Quantum (TSX:FM) was off $2.91 at C$62.74.

Outside commodities, the industrial sector was the biggest decliner as Canadian Pacific Railway (TSX:CP) shed 91 cents to $56.69.

The financial sector was the biggest advancer, up 0.2% as CIBC (TSX:CM) gained $1.95 to $74.25.

Adding to market instability Wednesday was a concern that an aid package worth US$1 trillion to help European governments deal with unsustainably high debt is insufficient and that the huge spending cuts needed to get that aid will drag down growth across the continent.

“And that’s the underlying worry — that Greece is only part of the issue,” said John Stephenson, portfolio manager at First Asset Funds Inc.

“People think all the dithering out of Germany in particular is really weakening the supposed resolve of this whole package and so there’s just concern it’s going to spread and they’re going to be stuck in piecemeal, last-minute bailouts of these countries and things will slowly spiral down.”

Major European stock markets tumbled nearly 3%.

The TSX has tumbled 530 points or 4.34% over five straight losing sessions, leaving the market about 80 points below where it started 2010 trading.

New York markets were also off earlier lows as the Federal Reserve upped its estimate for economic growth. The central bank said Wednesday that the U.S. economy will grow between 3.2% and 3.7% this year. That’s an upward revision from a growth range of 2.8 to 3.5% in its January forecast.

The Dow Jones industrial average was down 66.58 points at 10,444.37.

The Nasdaq composite index lost 18.89 points to 2,298.37 while the S&P 500 index shed 5.75 points to 1,115.05.