TSX loses 372 points

New worries about European debt sent Canada's largest stock exchange lower on Monday, as investors digested the increasing likelihood of a Greek default.

The S&P/TSX composite index lost371.98 points to close at 11,251.86. That was a drop of3.2 per cent.

The loonie touched a new one-year low of 94.97 cents US during the day before closing at 95.14 cents US, down 0.26 of a cent.

Oil droppedto its lowest level in more than a year, trading as low as $76.85,before closingdown$1.59, or two per cent,at $77.61US a barrel in New York.

In New York, the Dow Jones industrial average was 258.08 points, or 2.4 per cent,lower at 10,655.30, the Nasdaq composite index lost 79.57 points, or 3.3 per cent, at 2,335.83 while the S&P 500 index lost 32.19 points,or 2.9 per cent, at 1,099.23.

Gold was buoyed by the bad news, with the price of an ounce of bullion for December delivery increasing $35.40 to close at $1,657.70 US an ounce. Gold tends to perform well during times of market turbulence and uncertainty.

Worries about Greece came to the fore after the government said the country's economy will remain in recession next year, causing it to miss its original deficit reduction targets.

Debt inspectors from the International Monetary Fund, European Central Bank and European Commission, known as the troika, are in Athens reviewing reforms to see if Greece qualifies to receive the next8 billion instalment of its bailout. Without it, Greece will run out of funds in mid-October.

A default would have serious repercussions for the European banking system and likely derail what is already a fragile economic recovery and send it into recession.

A recession would lower demand for oil, copper and other resources Canada produces. That would weaken exports and squeeze profits in Corporate Canadaeroding a main driver of share prices on the resource-heavy TSX.

"The commodity market is really tied to the global economic recovery and so when we see a slowdown globally, it obviously impacts Canada," said Sadiq Adatia, chief investment officer at Sun Life Global Investment.

"We'll see commodities bounce back at some point in time but just like anything else, when there's a global slowdown, everything gets impacted and commodities will get its fare share of that."

A draft of the country's2012 budget says Greece's debts are projected to reach 172.7 per cent of gross domestic product in 2012 while the deficit will drop to 6.8 per cent. That's an improvement, but still higher than the 6.5 per cent originally agreed with international bailout creditors.

"It's actually not a surprise," Adatia said, "because this is what the EU has been talking about in terms of getting additional fundingthey said [Greece] hasn't lived up to their previous promises."

"Greece hasn't convinced itself it needs to do more," he said.