The Toronto stock market closed lower Thursday, led by falling energy stocks amid moves to release a large amount of crude oil from strategic reserves.
But markets closed well off early lows amid a report that Greece has reached a new austerity plan with European officials.
The S&P/TSX composite index came back from a 222-point tumble to close down 80.98 points to 12,979.58 after Reuters reported that a new five-year austerity plan had been arrived at that will include tax hikes and spending cuts.
A vote was scheduled next Tuesday for Greek legislators to approve a further €28-billion ($40.24-billion U.S.) in budget cuts and new taxes and back a €50-billion privatization program in order for the euro zone countries to hand over €12-billion in bailout funds that Greece needs to avoid bankruptcy in mid-July.
The TSX Venture Exchange lost 21 points to 1,914.88.
The Canadian dollar also finished well off the lows of the session as strength in the greenback moderated following the Greek report. It closed down 0.51 of a cent to $1.0225 (U.S.).
The loonie had fallen as low as $1.018 as worries about economic growth and a possible Greek default pushed traders to the safe haven status of the greenback.
The TSX energy sector fell 1.14 per cent as oil prices closed just above $91 a barrel after the International Energy Agency announced the release of 60 million barrels of oil from global strategic reserves in 28 countries because of the ongoing disruption of oil supplies from Libya. The IEA estimates that Libyan unrest removed 132 million barrels of light, sweet crude oil from the market by the end of May.
The August crude contract on the New York Mercantile Exchange fell $4.39 to $91.02 a barrel.
Other factors were at work driving oil prices lower, including Wednesday's assessment from the U.S. Federal Reserve that the country's economy is weaker than previously forecast. It lowered its estimate for economic growth this year to 2.9 per cent from 3.3 per cent.
Fed Chairman Ben Bernanke also said the U.S. central bank doesn't plan to extend a stimulus program of Treasury purchases, known as quantitative easing.
"[The IEA move]had some impact but the market is very nervous about a double dip recession and a lot of commodity prices that went up are coming down hard," said Azim Hajee, senior trader at Lind Waldock.
"If we go into a recession, it would be quite negative for the commodity markets."
Mr. Hajee added that oil could "easily" go down to as low as $83 to $85 a barrel while gasoline could retreat 10 cents (Canadian) to 15 cents a litre in Canada.
Commodity prices were also slammed by the higher U.S. dollar.
A stronger greenback usually helps depress commodity prices, which are denominated in dollars, as it makes oil and metals more expensive for holders of other currencies.
The July copper contract in New York lost 5 cents (U.S.) to $4.04 a pound but the base metals sector turned positive, rising 0.4 per cent.
Bullion prices dropped with the August contract down $32.90 at $1,520.50 an ounce after rising for the previous seven sessions.
New York markets were mainly lower as data came out showing more Americans filing for jobless insurance last week.
The U.S. Labour Department said applications rose by 9,000 to a seasonally adjusted 429,000 last week. It was the second increase in three weeks and the biggest jump in a month.
But rising hopes that Greece can avoid a default left the Dow Jones industrials well off early lows, losing 59.67 points to 12,050 after earlier retreating 235 points.
The Nasdaq composite index gained 17.56 points to 2,686.75 while the S&P 500 lost 3.64 points to 1,283.5.