Toronto's S&P/TSX composite index closed down 573 points to 10230, the Dow Jones industrial average closed down 370 points to 9956, the S&P 500 closed down 42 points to 1057 and the Nasdaq closed down 84 points to 1863.

"It feels more like a very steady, orderly bleed, as opposed to massive running for the door panic," one trader said.

Equity markets were punished early in the session, with the TSX falling nearly 1,200 points at its lows as fears peaked. Bourses in the UK and Europe posted their worst one-day losses since 1987 and trading was briefly halted in Russia and Brazil.

The selling accelerated early in the session when it became clear that a co-ordinated central bank rate cut was not forthcoming. But as the day wore on, equity sentiment improved slightly and the TSX halved its losses. Nonetheless, the Dow Jones industrial average closed below 10000 for the first time since October 2004.

European stock markets closed with the Eurostoxx down 204 points to 2523, the UK FTSE 100 down 391 points to 4589 and the German DAX down 410 points to 5387.

"Scanning the carnage in equity markets might cause one's head to swoon," said David Watt, senior currency strategist at RBC Capital Markets.

The sharp moves in equities sent the VIX, or volatility index, up nearly 13 points to a record high of 58.24. It closed at 52.05.

Even as equity markets improved, Treasury yields continued to fall and finished the day near session lows. Canadian two-year yields fell to their lowest since the all-time low in March 2004.

"We are to the point of fearing fear itself," wrote Bill Gross, managing director of PIMCO, in his monthly letter.

Yields on two-year Canadian government bonds were down 28.0 bps to 2.24%, with five-year yields down 22.6 bps to 2.73%, 10-year yields down 15.0 bps to 3.44% and 30-year yields down 10.5 bps to 3.99%. The December 08 BAX contract was up 40.0 ticks to 97.57.

U.S. two-year yields were down 15.2 bps to 1.43%, with five-year yields down 19.2 bps to 2.44%, 10-year yields down 14.4 bps to 3.46% and 30-year yields down 11.0 bps to 3.98%. The Eurodollar March 09 contract was up 28.5 ticks to 97.81. The yield curve was steeper, with the 10/2-year spread up 0.8 bps to 202.68 bps.

In Germany, returns on two-year German bonds were down 22.3 bps to 3.06%, with five-year yields down 19.6 bps to 3.40%, 10-year yields down 17.1 bps to 3.75% and 30-year yields down 16.9 bps to 4.20%.

Yields on UK two-year bonds were down 36.7 bps to 3.67%, with five-year yields down 29.0 bps to 3.85%, 10-year yields down 18.9 bps to 4.22% and 30-year yields down 12.9 bps to 4.23%.

"Stock's inability to find a floor -- at least a near-term one -- has continued to be the touchstone for the Treasury market bulls as well as a point of continued apprehension for the U.S. consumer, surely," wrote fixed income strategists at RBS Greenwich Capital.

The foreign exchange market didn't escape the volatility, especially the Australian dollar, which fell 13.5% against the Japanese. The Reserve Bank of Australia meets later Monday and is expected to lower interest rates.

The Canadian dollar was down 0.0180 to 0.9084 against the U.S. dollar (1.1007 USD/CAD) and down 4.88 to 92.44 against the yen.

The U.S. dollar was down 3.54 to 101.77 against the yen and the Dollar Index was up 1.129 to 81.442.

The euro was down 0.0242 to 1.3530 against the U.S. dollar, down 0.0017 to 1.4894 against the Canadian dollar, down 0.0023 to 0.7754 against the pound sterling and was lower by 7.40 to 137.67 against the yen.

The pound sterling was down 0.0270 to 1.7445 against the U.S. dollar and up 0.0022 to 1.9200 against the Canadian dollar.

WTI crude oil was down $4.53 to $89.35. The front month gold contract at the Chicago Board of Trade was up $34.30 to $865.50 per ounce.

All data taken at 4:38 p.m.

By Adam Button, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Nancy Girgis, This email address is being protected from spam bots, you need Javascript enabled to view it

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