TORONTO - Falling oil prices pounded the Canadian stock market Monday, dragging the benchmark index to its lowest level in more than three years as fears mounted that the growing financial crisis is battering economies around the world.

The Toronto stock market plunged more than 1,000 points, or nine per cent, in the first hour of trading, a paper loss of more than $100 billion, continuing a wave of panic selling from last week.

On Wall Street, the Dow Jones industrials skidded nearly 400 points and fell below 10,000 for the first time in four years.

Since the beginning of the year, the Toronto market has lost close to 30 per cent of its value, more than $600 billion, and has dropped to its lowest level since mid-2004.

On commodities markets, oil prices slipped below US$90 a barrel for the first time since early February and traded at US$89.87 in morning action, down more than $4.

Oil is down by about 40 per cent from its July peak, with traders betting on lower demand for energy as economies slip into recession. Oil stocks have driven the TSX and any drop in the price of crude has a depressing effect on the energy sector and the Canadian dollar.

On currency markets, the loonie plunged 1.6 cents to 90.76 cents US.

Investors appear to have dismissed the Bush administration's US$700-billion financial-sector rescue plan, which they worry won't work quickly to unfreeze the credit markets and loosen up bank lending.

"These programs are going to be effective, I believe," said Rob Lutts, chief investment officer at Cabot Money Management. "Shorter term, we're in a very challenging environment that's going to take a while."

Over the weekend, governments across Europe rushed to prop up shaky banks. The German government and financial industry agreed on a $68 billion bailout for commercial-property lender Hypo Real Estate Holding AG, while France's BNP Paribas agreed to acquire a 75 per cent stake in Fortis's Belgium bank after a government rescue failed.

Prime Minister Stephen Harper played down fears of a recession in Canada and said the main problem afflicting the world economies is the freezing up of bank credit, which has hurt companies and consumers looking for loans.

"Our main advice is obviously to encourage co-ordinated action, to encourage actions that will stabilize the situation without creating a great deal of moral hazard for taxpayers," Harper said while campaigning in Ottawa.

"Let's be clear: the prime minister of Canada isn't going to go around the country predicting a recession when we're not in a recession now. I remain fundamentally optimistic about the Canadian economy, but optimistic, as I've said from the beginning, within the framework that we're now living in ... a period of economic uncertainty."

Harper added: "We're in relatively good position compared to some other countries."