The Toronto Stock Exchange and the Dow Jones continued their decline on Tuesday, posting triple-digit losses after the closing bell rang. Talk of interest rate cuts intensified as the losses piled up.

Despite an early morning upswing of 250 points, the S&P/TSX composite index finished at a loss of 400.88 points to sit at 9,829.55.

The Dow Jones Industrial Average opened with a modest 71.68 point increase, but at the end of the day was down 508.39 points to 9,447.11.

The Nasdaq also rose by 15.59 points in early-morning trading, before finishing down 108.08 points to sit at 1,754.88. The S&P 500 fell 60.62 points and stands at 996.27.

It's the second week of heavy losses in the markets due to the global credit crisis. Economists are now warning that Canada is headed for one of the toughest economic periods in recent memory, as job losses climb and energy prices tumble.

In an effort to calm the markets, the U.S. Federal Reserve announced that it plans to buy short-term debt so companies can finance daily operations.

The move means the Federal Reserve will act as a source of credit for businesses outside the financial sector that can't raise funds during a credit squeeze.

While the initiative will help small businesses and should restore some balance to the market, one financial analyst said, government should not have to insert itself into the credit market.

"This is not ideal by any stretch," analyst Theo Caldwell told CTV Newsnet. "Yes, this is what should be done but this is not the way markets and economies ought to work."

Interest rate cuts expected

Although governments around the globe have tried to bail out their financial sectors to get banks lending again, there are still nervous investors and consumers who wonder whether that will be enough to revive world markets from an economic slump.

BNN's Michael Hainsworth said U.S. Federal Reserve Chairman Ben Bernanke's speech on Tuesday hinted that interest rates may need to be cut before the formal decision scheduled for later this month.

"If plan A didn't seem to work and plan B didn't seem to work, plan C seems like a last ditch effort as far as the street is concerned," Hainsworth told CTV Newsnet. "That's ultimately why we saw the sell-off that we did."

Analysts speculate that the Bank of Canada, the Federal Reserve, the Bank of England and other central banks will cut interest rates in a further attempt to keep credit flowing.

Don Drummond, the Chief Economist at TD Bank, told CTV's Mike Duffy Live on Tuesday that Bernanke's speech may signal a change in Canada.

"(Bernanke) said he is going back to cutting interest rates (and) I expect at their next meeting they will cut fifty basis points.

"We saw Australia cut one-hundred basis points; it's a shocking move to everybody," Drummond said. "I think the next wave is a worldwide round of rate cuts and the Bank of Canada will probably join on that."

The Canadian dollar also slid lower on Tuesday, dropping 0.67 cents, to stand at 90.31 cents US. This latest loss caps a three cent loss against the American dollar since the beginning of the month.

With files from The Canadian Press