Wednesday, November 09, 2011 00:45 PM EST Equities take midday pounding Italian debt worries refuse to fade The Toronto stock market was deep in the red Wednesday as commodity prices retreated amid worries that Italy’s borrowing costs are becoming too large to handle and the effect Europe’s chronic debt woes could have on the global economy. The S&P/TSX composite index plummeted 158.93 points, or 1.3%, to 12,329.92 The Canadian dollar dumped 0.78 cents to 98.25 cents U.S. Markets had responded enthusiastically Tuesday after Premier Silvio Berlusconi lost a confidence vote and his majority in parliament and said he would resign after his government’s new austerity budget is passed. But pessimism returned with a vengeance as the country’s 10-year bond yield jumped above the seven per cent level amid uncertainty about who will steer the country through its debt crisis. The yield on Italy’s 10-year bonds surged Wednesday to a high of 7.41% up 0.83 of a percentage point from the previous day. Bond yields in the 7% range are considered to be unsustainable in the long run. When Greece, Ireland and Portugal saw their 10-year borrowing rates rise above 7%, the markets concluded they had to be bailed out. Higher rates would make it more difficult and expensive for Italy to roll over its debts. The country has more than €300 billion to raise in 2012 alone and with debts of around €1.9 trillion, Italy’s debts are considered far too big for Europe to bail out. Italian President Giorgio Napolitano sought to reassure markets, saying speculation about whether Berlusconi would actually leave office is completely unfounded. He said economic reforms demanded by the European Union would be passed by parliament "in a matter of days." The euro-zone’s debt crisis threatens the region’s banks, its currency and there are worries it could derail an already fragile economic recovery. Slowing economic conditions would erode demand for oil and metals, which in turn pressures share prices of oil and mining companies on the TSX. The TSX energy sector lost ground while Suncor Energy shed 99 cents to $32.30 and Cenovus Energy lost 54 cents to $34.21. Metals also fell back as the December copper contract in New York lost nine cents to $3.44 U.S. a pound. The mining sector fell as Teck Resources dropped 98 cents to $39.27 and First Quantum Minerals retreated $2.34 to $20.65. Railroad stocks fell alongside resource companies as Canadian National Railways gave back $1.01 to $79.61. Worries about the European banking system pushed the TSX financial sector down, as Royal Bank declined 95 cents to $45.47. In the gold sector, Barrick Gold Corp. gained 72 cents to $53.22. On the economic front, Statistics Canada’s new housing price index crept up 0.2% in September, following a 0.1% improvement in August. ON BAYSTREET The TSX Venture Exchange dipped 24.53 points to 1,645.14, while the Nasdaq Canada index gave back 12.82 points to 416.85 Among the 14 Toronto subgroups, only gold saw daylight, gaining 0.9%. Among the losing groups, metals and mining tanked 4.9%, while global base metals fell 4.1% and energy got bruised 2%. ON WALLSTREET In New York, investors were running for the hills Wednesday, shaken to the core by fears that Italy, Europe's fourth-largest economy, was headed deeper into crisis mode. The Dow Jones Industrials hurtled earthward 256.19 points, or 2.1%, to 11,913.99, with all 30 components in the red. The S&P 500 tripped 30.45 points to 1,245.47, while the Nasdaq Composite Index slid 67.86 points to 2,659.63. U.S. stocks sold off sharply right from the open after Italy's 10-year bond yield spiked above 7% -- its highest since the euro was launched in 1999. Bank stocks were among the big losers, with Citigroup, Goldman Sachs and Morgan Stanley down more than 5%. JPMorgan Chase and Bank of America shares fell more than 3%. Adobe shares tumbled after the company announced it is laying off 750 workers, or 7% of its workforce. Adobe also lowered its earnings forecast for the fourth quarter. Shares of General Motors slid after the automaker posted lower third-quarter earnings of $1.7 billion U.S. CEO Dan Akerson said in the earnings release that the solid performance in the quarter "isn't good enough." Shares of Macy's fell after the retailer reported earnings results ahead of the market open that missed expectations. Dean Foods shares also slipped although the company posted a smaller-than-expected loss for the third quarter and raised its full-year outlook. Cisco Systems is scheduled to report earnings after the market close. Economically speaking, a report on inventories will be released later Wednesday. Analysts surveyed by Briefing.com expect wholesale inventories to have increased by 0.5% for the month of September, after increasing 0.4% in the month prior. Mounting fears about Italy also sparked a flight to quality in U.S. Treasuries. The 10-year yield fell to 1.98% from 2.06% late Tuesday, on galloping prices. Treasury prices and yields move in opposite directions. Oil for October delivery gained 74 cents to $97.54 U.S. a barrel Gold prices fell $11.36 to $1,787.84 U.S. an ounce.