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Traders work on the floor of the New York Stock Exchange (NYSE) June 27.Brendan McDermid/Reuters

The aftershocks of the U.K.'s vote to leave the European Union reverberated across financial markets after a weekend of political turmoil, with the pound extending its record sell-off and European equities dropping to levels last seen in February.

Risk assets have been under pressure since Britons voted to secede from the EU, raising concerns that an already-fragile global economic recovery will falter as trade snarls in one of the world's biggest consumer blocs. More than $4-trillion (U.S.) has been was wiped from global equity values as internecine squabbles flared in the U.K.'s main political parties, exacerbating the sense of instability.

"This is the new normal - politics could add more volatility to all financial assets," said Barbara Reinhard, head of asset allocation for multi-asset strategies at Voya Investment Management, which manages $213-billion. "This is in part because central banks have done the lion's share of lifting for stimulus."

Canadian stocks declined again amid the fallout from Britain's decision.

The S&P/TSX Composite Index lost 1.46 per cent, or 202.8 points, to 13,689.11 in Toronto, following a third week of losses and a weekend of political turmoil. The benchmark has suffered a two-day retreat of 3.2 per cent, the biggest since February.

The S&P/TSX has now erased gains for June and is on pace to halt a four-month rally. Canadian equities have fared relatively better than global peers this year. The S&P/TSX is neck-and-neck with New Zealand as the top-performing developed markets in the world in 2016, with the countries now the only two among 24 in positive territory, according to data compiled by Bloomberg.

Canadian shares remain more expensive relative to their U.S. peers. The S&P/TSX now trades at 21 times earnings, about 14 percent higher than the valuation of the S&P 500 Index.

Royal Bank of Canada and Bank of Nova Scotia stumbled at least 1.9 per cent to lead a decline in financial services stocks. Energy producers Encana Corp. sank 6.27 per cent.

First Quantum Minerals Ltd. slumped 6.9 per cent to led losses in commodity producers. Gains by gold stocks weren't enough to offset declines among base-metals and fertilizer producers, even as investors flocked to the precious metal as a haven.

Gold pushed its increase this year to 25 per cent. The S&P/TSX Gold Index has rallied 91 per cent this year, on pace for the biggest annual gain since 1993 and its best year-to-date performance in at least 30 years, data compiled by Bloomberg show.

U.S. stocks also continued a rout sparked by Britain's shock vote to leave the European Union, with the Dow Jones Industrial Average falling more than 250 points after equities on Friday tumbled the most in 10 months.

Banks remained the focal point in the downdraft, with no sign of the pummeling letting up after lenders on Friday saw the worst one-day drop in almost five years. Sentiment was dealt another blow after S&P Global Ratings today cut the U.K.'s top credit grade by two levels.

The Dow Jones industrial average fell 260.3 points, or 1.5 per cent, to 17,140.45, the S&P 500 lost 36.85 points, or 1.81 pe rcent, to 2,000.56 and the Nasdaq Composite dropped 113.54 points, or 2.41 per cent, to 4,594.44.

"Today seems to be a repeat of Friday," said Ben Rozin, senior analyst and portfolio manager at Manning & Napier Advisors, which manages $37.3 billion. "We came into this year with first-quarter earnings being weak, and we were just beginning to see signs that the second quarter would be better. A big shock isn't good for confidence or investments. There's a lot of uncertainty and people weren't positioned for the vote ahead of time."

Risk assets have been under pressure since Britons voted to secede from the EU, raising concerns that an already-fragile global economic recovery will falter as trade snarls in one of the world's biggest consumer blocs. Friday's losses reversed a weekly advance in the S&P 500 and pushed the CBOE Volatility Index up 49 per cent. The measure of market turmoil known as the VIX fell 9 per cent Monday to 23.39, even as stocks continued to drop.

The U.K.'s Brexit vote left investors around the world scurrying toward safe havens for a second session after the S&P 500 on Friday fell 3.6 per cent to erase its advance for the year. Investors are watching for policy action by central banks worldwide to ease the turmoil and pump liquidity into financial markets.

The next days and weeks will likely be key for central banks as they seek to minimize the damage in trading from Asia to the U.S. European equities extended losses on Monday, even as U.K. Chancellor of the Exchequer George Osborne sought to reassure financial markets, saying contingency plans were in place to shore up the U.K. economy.

The European Central Bank is hosting a three-day meeting in Sintra, Portugal that will include a speech from its president, Mario Draghi. Federal Reserve Chair Janet Yellen withdrew from a Wednesday panel discussion at the gathering, the Fed said Monday, without offering a reason. German Chancellor Angela Merkel will host EU President Donald Tusk in Berlin Monday to talk about the U.K.'s exit plan.

Financial leaders including International Monetary Fund Managing Director Christine Lagarde and U.S. Treasury Secretary Jacob J. Lew have said that the market reaction to Brexit had been orderly so far and that central banks have worked effectively to protect liquidity in the system.

Traders abandoned bets on future Fed interest-rate increases well into 2017, after expectations for higher borrowing costs this year had crept up before the Brexit vote. Odds of a Fed move by February have fallen to 9 per cent, from 52 per cent Thursday. The probability of a rate cut when policy makers meet in September rose to 21 per cent.

Britain's departure will unleash as much as $300-billion of selling by automated quant programs in the already-battered U.S. stock market, Marko Kolanovic, the JPMorgan Chase & Co. derivatives strategist, wrote in a note late Friday. Equity investors in the U.S. would be wise to stay away until quant managers finish the rebalancing that was forced on them by the day's volatility, he said.

"Investors are being given a short line on risk with headlines changing on almost an hourly basis," said Nick Ford, a London-based fund manager at Miton Group, which oversees the equivalent of about $3.9-billion. "It makes sense people are being cautious. Recent economic indicators in the U.S. have already been disappointing. What happened on Friday makes any Fed action in the near future even less likely."

Some of the world's biggest money managers, with a combined $6.7-trillion in assets, are regrouping after the worst day for global equities in almost five years. BlackRock Inc. says the impact on U.S. and Asian shares will be limited and central banks will continue to support growth. Franklin Templeton Investments says investors overreacted and the volatility creates chances to purchase lenders and energy producers.

Oil capped the biggest two-day drop since February as futures remained volatile after the U.K. last week voted to leave the European Union.

Futures tumbled 2.8 pe rcent in New York, extending Friday's 4.9-per-cent slump, the biggest drop in four months. The turmoil in financial markets continued as the pound extended its record selloff while demand for haven assets boosted gold and the dollar. Crude may plunge if the shock of Britain's vote comes as output rises, Russian Energy Minister Alexander Novak said.

"A chill has come over the market due to the Brexit vote because it brings with it the prospect of slower economic growth and lower oil demand," said John Kilduff, partner at Again Capital LLC, a New York hedge fund focused on energy. "The dollar is higher, which is putting pressure on commodities as a whole."

Oil capped a second weekly drop on Friday as prices slid with equities after the U.K. voted to quit the EU following more than four decades of membership. Nigeria continues talks to restore oil output lost to rebel attacks while Canada restarts facilities after wildfires. Saudi Arabia, the International Energy Agency and BP Plc all see a balance emerging between supply and demand. Prices are up almost 80 percent from a decade low in February.

West Texas Intermediate for August delivery fell $1.31 to settle at $46.33 a barrel on the New York Mercantile Exchange. It's the lowest close since June 16 and caps a 7.5 percent two-day decline.

Brent for August settlement dropped $1.25, or 2.6 per cent, to $47.16 a barrel on the London-based ICE Futures Europe exchange. The contract closed at the lowest since May 10. The global benchmark crude ended the session at a 83-cent premium to WTI.

The Bloomberg Dollar Index, which tracks the currency against major peers, rose as much as 1 per cent. A stronger greenback curbs investor demand for dollar-denominated commodities. The Bloomberg Commodity Index, a gauge of 22 raw materials, decreased as much as 0.6 per cent.

"If the dollar continues to strengthen you could be talking about $40 oil," said Bill O'Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $4.3-billion. "The dollar is key, even though it doesn't have a lot to do with supply and demand, at least in the short term. This will make oil more expensive for non-dollar buyers, which will hurt demand long term."

WTI closed below the 50-day moving average, which stands at $46.92, for the first time since February. A settlement below this indicator may signal further price declines to come.

Returning production in Canada and Nigeria, combined with the Brexit result, could mean "the drop in prices in the short term may be serious," Russia's Novak said in an e-mailed statement.

With files from Bloomberg News

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