European debt deal concerns markets

Markets closed sharply lower Monday, as investors were doubtful about a deal to strengthen European economies, reached Friday.

The benchmark Toronto index closed down 126.86 points at 11,907.89, following losses in U.S. and many other — although not all — world markets.

The drops were a reversal of Friday's gains, when markets reacted positively after most European Union countries backed plans for a new treaty that would impose controls on budgets and spending.

But traders feared the deal wouldn't help the ailing euro and European economies right away.

"While it was comforting to see all 17 Euro members ratify their latest treaty, many feel that the groundwork laid will assist in averting the next crisis while doing little to deal with the current one," said John Curran, senior vice-president at CanadianForex.

Money was flooding into the U.S. dollar, seen as a safe haven in times of trouble. That had the effect of driving down the loonie and gold prices. Oil fell $1.64 to just over $97.77 US a barrel on the prospect of weaker economic growth.

The loonie was down 0.71 of a cent to 97.48 cents US. Gold was down more than $41 Cdn an ounce to about $1,708.

In the U.S., the Dow Jones closed down 162.87 points at 12,021.39 while the S&P 500 fell 18.72 points at 1,236.47.

Latvia's largest bank was facing a run Monday as rumours spread that Swedbank had legal and liquidity problems in Estonia and Sweden.

Greece began discussions on a second rescue loan package on Monday.

In Italy, workers went on strike against austerity measures, pushing Milan's stock exchange index down.