The Toronto stock market closed lower but well off an early plunge Tuesday amid fresh hopes that European officials are moving to control damage from the European debt crisis.

The S&P/TSX composite index closed down 73.92 points at 11,177.91. It had earlier fallen more than 400 points to its lowest level since October 2009 as the possibility of a global recession and a Greek debt default continued to rattle investors.

But investor sentiment improved late in the afternoon after the Financial Times reported that eurozone officials were studying a bank recapitalization plan.

Investors have been concerned over the last couple of months about the slowing pace of economic revival and a possible default by Greece, which would worsen economic conditions and wreak havoc on the European financial sector.

“Clearly, it’s taking quite a toll on the markets,” said Kate Warne, Canadian markets specialist at the Edward Jones brokerage in St. Louis.

“No one is sure that policy-makers will move fast enough or do what needs to be done to allow Greece to restructure payments — which is another nice word for saying default.”

The junior TSX Venture Exchange fell 56.05 points to 1,333.34.

Fears over the pace of economic revival have translated into deep price slides for oil and metals and pushed the resource-heavy TSX into bear market territory, generally defined by a drop of at least 20 per cent from recent highs.

Just in the last month, the TSX has lost about 12.5 per cent or $250 billion from a market capitalization of $2.1 trillion on Aug. 31, making a huge dent in the value of stocks in Canadian pension plans, mutual funds and individual stocks held by ordinary Canadians.

Federal Finance Minister Jim Flaherty on Tuesday repeated his call for European leaders “to get ahead of the markets to overwhelm the problem” with a larger emergency fund.

“As I have said to my colleagues in Europe, (what is needed is) one, a commitment of political will; two, decisiveness, and three, clarity. Those are the three things European leaders need to do in order to restore confidence. It is time for the eurozone countries to deal with that situation.”

The loonie has also been a casualty of economic worries despite the still strong fundamentals of the Canadian economy, reflecting the steep drop in commodity prices and a flight to the perceived safe haven of U.S. Treasury bonds.

The loonie fell 0.34 of a cent to 94.8 cents US on Tuesday after dipping as low as 94.02 cents US earlier in the session, its lowest level since August 2010.

U.S. markets turned around late in the session after a string of recent losses, with the Dow Jones industrial index closing up 153.41 points at 10,808.71.

The Nasdaq composite index pushed up 68.99 points to 2,404.82 while the S&P 500 index gained 24.72 points to 1,123.95.

Markets got off to a dismal start to October trading Monday after Greece said it wouldn’t be able to reduce its budget deficits as much as it had agreed to as part of a deal to receive more emergency loans. Fears have been growing that Greece, despite billions of euros in rescue loans, will eventually have to default on its massive debts.

Officials indicated early Tuesday that Greece will get a loan instalment it needs to keep paying its bills, though not as soon as Greece says it needs the money.

Markets were unimpressed with a comment from the Greek finance minister that the country has enough money to pay pensions, salaries and bondholders through mid-November. Greece had previously said it would start running out of money in mid-October if it didn’t get the next euro8-billion instalment of a euro110-billion rescue package.

Financial stocks contributed to the negative session as traders tried to gauge the effect a Greek default would have on the global banking system.

The financial group lost 1.27 per cent with TD Bank (TSX:TD) down 53 cents to C$71.14, while Royal Bank (TSX:RY) was off 83 cents to $45.95.

The stronger U.S. dollar and the prospect of slower economic growth continued to drive commodities lower.

A stronger greenback usually helps depress prices for oil and metals, which are denominated in U.S. dollars, as it makes commodities more expensive for holders of other currencies.

Negative outlooks on commodities and big resource companies also contributed to losses on the TSX.

Goldman Sachs, regarded as one of the more bullish on commodities, lowered its Brent crude oil price outlook for 2012 from US$130 to US$120 a barrel and cut its copper price forecast by almost 15 per cent from US$10,790 to US$9,200 a tonne.

And Credit Suisse cut its target prices for the leading mining companies.

The TSX energy sector closed little changed as the November crude contract on the New York Mercantile Exchange lost $1.94 to US$75.67 a barrel, its lowest close since September, 2010. Suncor Energy (TSX:SU) gained 15 cents to C$25.43 and Cenovus Energy (TSX:CVE) lost 53 cents to C$30.40.

The gold sector lost about three per cent as bullion prices headed lower with the December bullion contract on the Nymex closing down $41.70 at US$1,616 an ounce. Barrick Gold (TSX:ABX) faded $1.48 to C$47.14 and Goldcorp Inc. (TSX:G) gave back $1.83 to C$45.94.

The base metals sector turned positive following a string of sharp losses, up 8.1 per cent as the December copper contract turned down five cents at US$3.10 a pound after going as low as US$3.04. Copper is widely viewed as a barometer for the health of the overall global economy since it is used in electronics, homes and infrastructure. Teck Resources (TSX:TCK.B) gained $2.30 to C$30.99 and First Quantum Minerals (TSX:FM) rose $1.51 to C$14.68.