TORONTO - The Toronto stock market faces a difficult week despite solid job creation data as worries about the spread of the European debt crisis show no signs of going away any time soon.

"The jobs data, all the economic fundamental data is secondary to a stable credit environment," said Paul Taylor, chief investment officer at BMO Harris Private Banking.

"All that means squat if in fact you have an unstable global credit environment and that is what we have."

The Toronto market tumbled 4.24 per cent last week, leaving the main index in the red for the year, even as the U.S. economy cranked out 290,000 new jobs last month, better than the 180,000 that had been expected.

In Canada, 108,700 jobs were created in April, going a long way toward reversing the losses of the recession and better than the 24,000 jobs that economists had forecast.

But, the data meant little to investors watching the Greek debt crisis for signs it can't be contained and that others that took on too much debt, such as Portugal and Spain, will also need billions to avoid default.

The stresses in the financial system are similar to those in the fall of 2008. At that time, credit was squeezed as banks became wary of lending to each other because of doubt about which institutions owned large amounts of bad debt.

"I'm watching this very, very carefully because this gets back into the situation of stress on the banking system, liquidity dries up and we know where it goes from there," said Patricia Croft, chief economist, RBC Global Management.

"We’re seeing signs of this again in Europe in particular but again people are alluding that this is looking like 2008 again. I hope not but that’s the key thing to watch right now."

What is difficult to determine is whether the slide last week could herald the start of a serious correction.

Croft, for one, thinks the market was due for one after markets surged last year and early 2010 from the lows of the financial crisis. The TSX alone ran up more than 60 per cent from early March 2009 to its recent high of about 12,300 in late April.

"We saw way too many bulls out there amongst institutional investors, the technical indicators were indicating the market was overbought, perhaps things got a little too stretched in the short term," added Croft.

The outlook for the Canadian dollar this week is also negative.

The currency lost 2.64 cents to end the week at 95.8 cents US, and went as low as 93.02 cents in hectic trading on Thursday, which was also the most volatile day on stock markets in recent memory.

The dollar and commodities were particularly hammered as the European debt crisis saw investors pile into the safe haven status of the U.S. dollar. Crude oil prices backed off 14 per cent last week from an intraday high of US$87.15 last Monday and the TSX energy sector fell 7.5 per cent during the week.

"The fundamentals would argue for parity but right now with risk off everybody wants to be in the U.S. dollar so parity is going to have to wait for a bit," added Croft.

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