The close: TSX dragged down by U.S. Fed 'tapering'

The Toronto stock market has piled on more losses amid signs that the U.S. Federal Reserve is getting ready to cut back on stimulus.

The S&P/TSX composite index fell 158.8 points to 11,836.86 on top of a slide of 192 points last week.

Meanwhile, the rising greenback pushed the Canadian dollar down 0.27 of a cent to 95.37 cents US.

U.S. indexes also ended in the red with the Dow Jones industrials down 139.84 points to 14,659.56 on top of a 271-point slide last week. The Nasdaq composite index gave back 36.49 points to 3,320.76 and the S&P 500 index lost 19.34 points to 1,573.09.

Markets started to nose-dive last Wednesday after Fed chairman Ben Bernanke signalled that the U.S. central bank feels economic data has improved to a point where it could start to wind up its bond buying program this year and wrap it up by the middle of next year.

Central banks have kept interest rates low by various means, including the Fed's bond buying program, to stimulate the economy – providing a major boost to U.S. stock markets. For example, the Dow is still up year 10 per cent year to date.

"(Bernanke) actually picked up his forecast for economic growth, (and) because of that he is saying he may actually be able to remove or lessen the stimulus," said Allan Small, senior adviser at DWM Securities.

"And you would think that would be a positive."

Brent and U.S. crude prices recovered from an early sell-off to three-week lows on Monday, rising as record flooding in Alberta, Canada's main oil producing province, threatened exports to the United States.

Major pipelines that move almost 1 million barrels per day of Alberta oil sands crude remained shut on Monday after a spill on a smaller line was discovered over the weekend, a spokesman for operator Enbridge Inc said.

CIBC economist Peter Buchanan said Monday that gasoline prices don't seem to have been hit by the natural disaster, but added that most watchers are still trying to get a handle on the impact of the sudden and extreme event.

"When you have flooding, refineries are sensitive to that, but I'm not quite sure that (the flooding) is to the possible extent of refinery disruptions," Buchanan said.

"If you did get that, that could certainly create more upward pressure on gasoline prices."

Gas prices Monday did not appear to reflect panic. In Calgary, they ranged from $118.9 to $125.9 a litre for regular gas, well within the average price for Alberta of $123.157, according to the price tracking website GasBuddy.com.

In Ontario, where the average is $125.652 a litre, Torontonians were paying between $119.4 and $124.6 a litre.

The threat to Canadian exports also overshadowed fears that a credit crunch in China could hit demand in the world's No. 2 oil consumer, which sent Brent beneath $100 a barrel overnight, extending a near-5-per cent slide last week.

The U.S. West Texas Intermediate (WTI) benchmark had the bigger bounce – more than $3 a barrel off a trough of $92.67, the lowest since June 4. WTI's discount to Brent fell to its lowest since November 2011. The Brent-WTI spread, as it's known by traders narrowed to as little as $5.91 a barrel.

"Imports from Canada should be down," said Phil Flynn, analyst at Price Futures Group in Chicago. "That's supporting U.S. crude futures versus Brent."

The pan-European FTSEurofirst 300 index closed down 1.6 per cent at 1,114.19 points, its worst finish since ending at 1,108.59 points on Nov. 29 last year.

The euro zone's blue-chip Euro STOXX 50 index also fell 1.5 per cent to 2,511.83 points, while the Euro STOXX 50 Volatility Index – a measure of investors' fears – rose 5.2 per cent to a 9-month high of 25.30 points.

With files from Reuters