A massive selloff in North American equities was sparked by earlier downgrades by Standard & Poor's of Ford, GM and aluminum-maker Alcoa. GM shares fell more than 30% on the day, while Ford was down 22%, effectively putting both companies on 'death watch'.

Investor confidence was shaken, sending the Dow Jones Industrial Average tumbling 676 points to 8579, the S&P 500 down 75 points, or 7.62%, to 909 and the Nasdaq down 95 points, or nearly 5.5%, to 1645. Canada's TSX fell 456 points, or 4.5%, to 9600.

The day began on a much calmer note than has been seen in many days, with the key releases consisting of U.S. weekly jobless claims and wholesale inventories data.

Initial claims for unemployment benefits in the United States fell back to 478k in the week ending Oct. 4, down from a seven-year high of 498k reached in the prior week, the Department of Labor reported. Continuing claims rose to a new cyclical high of 3.659 million for the week ending Sept. 27.

Initial jobless claims were expected to drop to 475k and last week's figure was revised upward to 498k. Continuing claims were expected to come in at 3.608 million for the week ending Sept. 27, following the previous week's upwardly revised figure of 3.603 million.

Ian Shepherdson, chief U.S. economist at HFE, noted that claims are "well above" the peak seen in the 2001 recession. "The only thing preventing a run of 2001-style drops in payrolls is that companies have not yet cut the pace of gross hiring as much as they have raised the pace of gross firing," he said.

U.S. wholesale inventories rose 0.8% month-over-month in August, above expectations for a 0.4% advance, while the previous month's figure was revised up to a 1.5% gain from a previously reported +1.4%, according to a report released Thursday by the Department of Commerce. Since August 2007, inventories have increased by 11.1%.

The International Council of Shopping Centers reported that comparable U.S. chain store sales rose just 1.0% last month compared to a year earlier, marking the weakest September gain since the survey was initiated eight years ago. In contrast, the pace of sales has advanced by 1.9% in the period from January to August. Wal-Mart was among the few stores managing to uphold sales through the turmoil. Excluding sales from Wal-Mart, same-store sales actually fell 0.9% in September.

Underground natural gas storage in the United States increased 88 billion cubic feet in the week ending Oct. 3, the Energy Information Administration (EIA) reported. The weekly increase was virtually in line with the +87 Bcf Bloomberg estimate. In the previous week, the EIA reported a supply increase of 87 Bcf. The EIA said total gas in storage was 3198 Bcf; below last year's levels but above the five-year average.

A report from the World Economic Forum says Canada has the soundest financial system in the world, and also places the country on the top 10 list of the world's most competitive countries. Canada snatched the top grade for its soundness of banks, plus made the top 10 for its strength of investor protection (5th) and financial market sophistication (6th). However, nearly a quarter of respondents cited Canada's high tax rates as of the "the most problematic factors for doing business."

Finance Minister Jim Flaherty said he will do whatever is needed to protect the country's economy and ensure that Canadians continue to have access to the credit they require. So far, he said, the Canadian economy and the country's financial institutions have coped better than those in most other industrialized countries.

It was a busy overnight, however, headlined by the failure of Iceland's largest bank. As credit conditions continue to tighten, the Icelandic Financial Supervisory Authority took control of yet another bank on Thursday, this time the nation's largest bank, Kaupthing. Although authorities maintain that deposits at the bank will be guaranteed, the financial institution follows failures from Glitnir bank and Lansdsbanki just days ago. Iceland's prime minister later asked the public not to withdraw large sums of money from the bank, as it would only further hinder the situation.

Housing prices in the UK continued to decline in September, according to a report from the Halifax Bank of Scotland, which showed a 1.3% month-over-month decline in house prices. Nevertheless, the data were better than forecasts for a 1.7% decline and the previous month's 1.8% contraction. In annual terms, house prices in the UK have fallen 12.4%.

After revisions, the UK's trade deficit showed a contraction in August, falling to a visible deficit of £8.198 billion, the Office for National Statistics reported. Economists had expected an improvement to -£7.6 billion from the unrevised -£7.667 billion in July.

The German trade surplus contracted further than expected in August, the German Federal Statistics Office (Destatis) reported, citing a decline from a revised €13.8 billion in July to €10.6 billion. Economists had been expecting a €12.0 billion level, from July's unrevised €13.9 billion.

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

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