Jan. 14 (Bloomberg) -- Canadian stocks fell to the lowest this year after Nortel Networks Corp., once the nation’s biggest company, filed for bankruptcy protection and U.S. retail sales dropped more than expected, signaling a deepening recession.

CanWest Global Communications Corp. declined the most in 17 years after saying that it may breach debt covenants. Potash Corp. of Saskatchewan Inc. fell 6.2 percent and Royal Bank of Canada lost 2.7 percent, leading a slide among finance shares and commodity producers as prices of oil and metals slumped.

December retail sales in the U.S., Canada’s biggest export market, fell 2.7 percent as job losses and a lack of credit led Americans to cut spending, the Commerce Department in Washington said. Economists predicted a 1.2 percent drop. The Standard & Poor’s/TSX Composite Index slid 3.1 percent to 8,688.36, the lowest since Dec. 29, extending 2008’s 35 percent loss.

“The consumer just has no money,” said Bill Tynkaluk, who helps manage about $1.4 billion at Leon Frazer & Associates Inc. “Canada’s not as bad as the U.S., but the momentum is on the downside. There’s still no buying interest in the market.”

Nortel, North America’s biggest phone equipment maker, dropped a record 69 percent to 12 cents after filing for bankruptcy protection in Canada and the U.S. Nortel had debt of $6.3 billion as of Sept. 30. Total liabilities amounted to almost $12 billion and Nortel has more than 100 creditors owed $100 million to $500 million, according to its filing.

Former Glory

The shares, which have lost 99 percent of their value in a year, peaked at C$1,245 in July 2000, the height of the technology bubble, adjusted for share splits. Nortel had a market capitalization of $366 billion and accounted for more than a third of Canada’s main stock index at the time.

CanWest Global fell a record 35 percent to 52 cents. Canada’s biggest media company reported a bigger-than-estimated loss today and said that it may not be able to comply with its “financial leverage ratio covenants” in fiscal 2009. CanWest has racked up about C$3.7 billion in debt from acquisitions including that of Conrad Black’s National Post and other Canadian newspapers in 2000.

Nortel’s bankruptcy will have a psychological effect even if it won’t have much of a direct impact on the market because it has shrunk so much, said Michael Sprung, president of Sprung & Co. Investment Counsel, which manages $50 million in Toronto.

“Certainly it’s a blow to confidence,” he said. “I suspect there’ll be massive job losses. It’ll feed into the decline of the economy. CanWest looks like it’s in trouble.”

Lenders Fall

Royal Bank, the nation’s biggest lender by assets, dropped 96 cents to C$34.84. Bank of Nova Scotia, Canada’s third-largest bank, slipped 3.4 percent to C$30.65. Canadian Imperial Bank of Commerce, the fifth-biggest, dropped 3.5 percent to C$48.86.

Potash Corp., the largest maker of crop nutrients, fell C$5.78 to C$87.67. Goldcorp Inc., the second-biggest bullion producer by market value, lost 3.8 percent to C$30.30.

Teck Cominco Ltd. slid 13 percent to C$5.73, falling for a seventh day. Canada’s largest diversified mining company sank on a credit rating downgrade to BBB- from BBB by Standard & Poor’s Corp. analyst Donald Marleau yesterday. Teck used $9.8 billion in loans, more than half of which is repayable this year, to buy Fording Canadian Coal Trust in October.

“On any bad day in the market that’s credit-related, stressed companies are going to be in the forefront,” Paul Hand, managing director of equity trading at RBC Capital Markets in Toronto. “Teck is in that category.”

Crude oil fell 1.3 percent to $37.28 a barrel after a U.S. government report showed that stockpiles climbed to a 16 month high as fuel demand tumbled. Copper and gold declined.

Suncor Energy Inc., the second-largest oilsands producer, decreased 6.2 percent to C$25.78. Petro-Canada, the country’s third-biggest oil and gas producer, slid 6.6 percent to C$28.68.

To contact the reporter on this story: John Kipphoff in Toronto at jkipphoff@bloomberg.net.

Last Updated: January 14, 2009 17:32 EST