Stock markets tumble

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North American stock markets tumbled in trading Friday, as the looming fiscal year-end for banks and mutual funds added fuel to an already negative market tone.

The S&P/TSX composite index closed down 164.47 points, or 1.49 per cent, at 10,910.75, but still above the worst levels of the day which saw the index slide 308 points at one stage.

In New York, the Dow Jones industrial average lost 249.85 points to 9,712.73, for a loss of 259 points, or 2.6 per cent this week and a flat finish for the month. The Nasdaq composite index dipped 52.44 points to 2,045.11, while the S&P 500 index dropped 29.93 points to 1,036.18.

The fiscal year-end for most U.S. mutual funds is Oct. 31, a factor that can often have a strong influence on trading toward the end of the month. This year, market watchers said, many funds are cashing out on some big gainers from the 2009 rally to get them on their books before their fiscal year expires, contributing to the declines we've seen this week - and that selling has accelerated Friday.

In Canada, meanwhile, the big banks also have a fiscal year end of Oct. 31, contributing to similar book-squaring in the banks' mutual-fund and investment-banking operations as the year winds down.

Robert McWhirter, president of Toronto-based hedge fund Selective Asset Management Inc., added that many technical market signals turned negative about a week ago, which has been a key factor in the downturn of stocks over the past week. Most notably, the S&P 500 and S&P/TSX composite indexes fell below their 50-day moving averages, a key technical sell signal.

"A lot of what's been going on the past week or so has been technicals," he said.

Meanwhile, hovering beneath the surface of the end-of-October selloff are nagging doubts about the sustainability of the U.S. economic recovery, as the consumer sector continues to show cracks following the Cash for Clunkers program. The U.S. Labour Department reported Friday that consumer spending fell in September for the first time in five months, while the University of Michigan consumer sentiment index also posted a month-over-month decline.

Also Friday, Statistics Canada reported gross domestic product shrank 0.1 per cent following a flat showing in July. Economists had expected a 0.1 per cent rise.

The loonie was down 1.29 cents (U.S.) to 92.43 cents following the report. But the currency was also pulled down by lower commodity prices and a higher U.S. dollar.

The loss followed a 270 point surge Thursday after news that the U.S. economy grew at an annualized 3.5 per cent pace in the third quarter.

For the week, the TSX was down 471.38 points, or 4.14 per cent. It was the index's second consecutive weekly loss and the first monthly loss since February. The vast majority of the decline has come in the last six sessions as the rally that sent the TSX up well over 50 per cent since the lows of early March started to run out of steam.

"It would be fair to anticipate some kind of a pullback," said Steve Uzielli, director, portfolio advisory group at ScotiaMcLeod.

Mr. Uzielli noted investors have not been reacting as positively to good news as they had been previously.

"As the market has moved higher and started to price in a fair bit of economic recovery, I think the market got to a position where it was pretty fairly valued," he said. "So to push it higher to the next level, investors need to see the next stage of growth and that ... is going to come from revenue growth, as opposed to just cost cutting."

With a file from The Canadian Press