The worldwide stock market sell-off seen overnight continued at the open of North American trading session on Friday, sending the Dow Jones down more than 8%. The panic that has gripped markets intensified Friday, sending stocks down sharply lower and the U.S. dollar higher.

At the open, the Dow Jones plummeted more than 8%, falling below the 8,000 mark for the first time since April 2003. After remaining in deeply negative territory for much of the day, reaching a session low of 7882, the index staged a massive 770-point rally and was up more than 300 points to an intraday high of 8901 shortly after 3:30 p.m. EDT. Moments later, the index plunged back into negative territory by more than 100 points before bouncing up again and seesawing between positive and negative territory before closing down 128 points to 8451.

Including Friday's losses, it was the worst week in the history of the Dow. Even during the crashes of 1929 and 1987, U.S. stocks had better weeks. The Dow closed down 18.1% on the week, the S&P 500 down 18.2% and the Nasdaq down 15.3%.

Canada's TSX Composite index fell more than 500 points to a session low of 9034, and closed the day slightly higher at 9065. Meanwhile, the volatility index (VIX) reached a reading of 70 for the first time ever.

In commodities, crude oil sold off, with prices falling more than $6 to below $80 per barrel, while gold was down $34 to $851 per ounce.

"This is a global financial pandemic. Just like viral pandemics, it is pervasive and prolonged and there has been little advance planning to deal with it," noted BMO chief economist Sherry Cooper. "There are no firewalls that can prevent it from spreading, as we have seen, but the question is how to deal with it once it has spread."

The heavily volatile session took place as G7 finance ministers gathered in Washington, D.C. to discuss the global financial crisis. Bank of France Governor Christian Noyer said that markets need to accept that liquidity measures will take time and that they can't keep asking for a new rescue package if results are not immediate.

"If we continue like this we'll never stop," he said, adding that the banks will get unlimited liquidity until January 2009. He noted that the disharmony in money markets threatens growth. Noyer also gave his assurance that the ECB will meet all banks' liquidity needs.

Earlier in the day, U.S. President George W. Bush held a press briefing to assure Americans that the government has a wide range of tools to calm uncertainty in credit markets and restore confidence to the financial sector. "We can solve this crisis and we will," the president said, adding that fear and uncertainty were driving markets but that the government is working on multiple fronts to address the turmoil.

In data releases, the Canadian economy roared into September, creating 106,900 new jobs including 19,700 in the manufacturing sector, Statistics Canada reported. The jump in jobs was more than 10 times the consensus estimate of analysts, who had projected an increase of 10,000 after August's jump of 15,200, and marked the biggest monthly net job gain in 30 years. The unemployment rate held steady at 6.1% as nearly 114,000 people entered the labour force during September.

"This survey was conducted in the middle of September, just as the financial turmoil began to gather serious momentum - so even this relatively timely report may be largely viewed as 'old news'," said Douglas Porter, deputy chief economist from BMO Capital Markets. "Still, this report drums home the point that the Canadian domestic economy carried much firmer momentum heading into the storm than many other nations."

Finance Minister Jim Flaherty announced today the government will buy up to $25 billion in insured mortgage pools in an effort to maintain the availability of "longer-term" credit in Canada. "This action will help Canadian institutions raise longer-term funds and make this credit available to consumers, home buyers and businesses in Canada," Flaherty said.

Later in the day, several of Canada's major banks said they are lowering their prime rates by between 0.15% and 0.25%. The Bank of Nova Scotia, Bank of Montreal and Royal Bank announced they are reducing their prime lending rates by 25 basis points to 4.25%. Meanwhile, CIBC and Toronto-Dominion said they will lower their prime lending rates 15 basis points to 4.35%.

Also in Canada, the merchandise trade surplus widened to $5.8 billion in August as the dollar value of imports fell more sharply than exports, Statistics Canada reported. Imports plunged 5.8% from the month before to $37.3 billion in August, the largest monthly percentage drop since December 1991. Exports fell for the first time in eight months, slipping 1.6% to $43.1 billion, mainly due to falling volumes.

The pace of increase in Canadian new home prices continued to slow in August, according to figures released Friday by Statistics Canada. The new housing price index was up 2.3% year-over-year, compared with July's +2.7%. The rate of increase has been trending steadily downward since September 2006, when it stood at 11.9% year-over-year. The national index was unchanged from July. Analysts had expected to see a 0.1% increase in the month-over-month index.

In the U.S., the monthly trade deficit narrowed in line with expectations in August, shrinking 3.5% to $59.1 billion, just ahead of the consensus expectation of $59.0 billion, and following an upwardly revised $61.3 billion in July, the U.S. Census Bureau reported. July's reading was initially reported at $62.2 billion. Total August exports were $164.715 billion, while imports were $223.853 billion, resulting in a goods and services deficit of $59.138 billion.

U.S. import prices declined 3% month-over-month in September, the largest one-month decline since April 2003, while posting a 14.5% annual gain, according to data released from the U.S. Bureau of Labor Statistics. The report also showed a 0.9% month-over-month drop in import prices excluding petroleum products. The decrease in the import prices was led by a 9.00% drop in petroleum prices, the largest monthly decline since October 2006.

International Monetary Fund Managing Director Dominique Strauss-Kahn said he has not seen signs of a currency crisis, adding that the euro offers stability to its member nations. He said markets are facing a crisis of confidence and that there is need to act quickly, adding that the U.S. fiscal stimulus package was "justified".

European Central Bank Governing Council member Lorenzo Bini Smaghi said in a speech today that the euro zone might need unified regulation and supervision. "Either a strong response is provided to the challenges posed by the current turmoil to the single financial market within the existing institutional framework, or the framework itself will be changed in favour of a more centralized system of supervision and crisis resolution," he said.

In overnight news, the Spanish government is planning to purchase €30 billion in banking assets in the fourth quarter of 2008 after it approved a €50 billion bank fund package to support the financial sector. The securities acquired by the government will all be AAA grade securities and purchased at auction. The government also approved a proposal to increase the deposit insurance limit in Spain to €100k from €20k previously.

Overseas markets fared no better than those in North America, with the European Stoxx 600 ending the week down 22% in its worst week on record. The UK's FTSE 100 fell 8.5% on the session in its worst one-day drop since 1987, while the Japanese Nikkei closed down 9.6% for a cumulative 23.5% decline on the week.

By Stephen Huebl, This email address is being protected from spam bots, you need Javascript enabled to view it , with contributions from Geoff Matthews, This email address is being protected from spam bots, you need Javascript enabled to view it , Steve Stecyk, sstecyk@economicnews, Patrick McGee, This email address is being protected from spam bots, you need Javascript enabled to view it and Erik Kevin Franco, 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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