"My own belief is if we were going to have some kind of crash or recession, we probably would have had it by now a year into the (financial) crisis," said Harper, who once taught economics.

But the crisis atmosphere that followed the collapse of one large U.S. investment house, and the opportunistic takeover another Monday, had leaders on both sides of the border seeking to calm jittery investors and voters in coming national elections.

The Toronto stock market plunged more than 500 points Monday on the news that investment bank Lehman Brothers had filed for bankruptcy while rival Merrill Lynch, the world's biggest brokerage, agreed to be taken over by Bank of America.

The Canadian dollar was down almost two-thirds of a cent against the U.S. currency for most of the day, even as the greenback fell against the euro.

And Canada's formerly hot housing markets showed more signs of cooling as existing home sales fell 3.4 per cent in August, bringing the year's retreat to 19.3 per cent, the worst since 1998. House prices are down 5.1 per cent for the year, the Canadian Real Estate Association said.

Harper maintained the deteriorating economic conditions were no reason for "doom and gloom."

While the Canadian economy will continue to creep along at a slow pace, "I think we'll manage that without bloodshed," he predicted. He added that his government is not in danger of falling into a deficit.

U.S. President George W. Bush emerged from the White House to calm fears, saying that "in the long run, I'm confident that our capital markets are flexible and resilient."

But the avalanche of bad news served to elevate fears that were already just below the surface about an impending economic slump in Canada, and likely thrust the question of which party can be most trusted to deal with the crisis to the forefront.

The Liberals jumped into the fray releasing a new attack ad Monday afternoon titled "This is Harpernomics," citing the supposed failures of the government.

And Liberal Leader Stephane Dion delivered a stinging rebuke of the Conservative record while campaigning in St. John's, N.L., a province where Conservative Premier Danny Williams has declared an all-out political war on Harper and his candidates.

"Stephen Harper has allowed what was a booming economy to hit a brick wall," Dion charged.

"Stephen Harper governs for the next day, the next poll. He wants to buy your vote with gimmicks for the next election."

Dion accused Harper of doing little to prepare Canada for the downturn - something the Tories dispute, citing tax cuts introduced last fall - nothing to improve productivity, and of overspending to the point of taking the government on the verge of the first deficit in over a decade.

And while the U.S. economy is troubled, Canada's is worse, he said.

He pointed out that Canada's gross domestic product has been lower than south of the border. Canada's economy shrank by 0.5 per cent on an annualized basis in the first six months of 2008, compared with growth of 2.1 per cent for the U.S.

Dion said his Green Shift plan would stimulate the economy by taking money from polluters and shift it to Canadians in the form of income-tax cuts, as well as make investments in modern, green technologies.

"What is the main problem that the world has today? It's energy costs," he said. 'If you have a strategy to make this country more energy efficient, you will increase the profitability of our economy, and its productivity. And it will create green jobs."

But Harper said uncertain times required adopting a cautious approach to the economy, saying the country is not ready for "wild experiments," referring to Dion's plan to impose a carbon tax and increase spending.

NDP Leader Jack Layton was more measured in his criticism, but he too accused the prime minister of adopting a hands-off approach to business. He said the Harper government has failed to put in place stringent oversight of financial institutions to protect Canadian consumers.

"He does not even support the monitoring of gas prices," he said.

While the financial turmoil in the U.S. continues to worry markets, most economists do not believe Canada is on the verge of a recession, forecasting weak growth rather than outright contraction for the rest of the year.

Dale Orr of Global Insight, a private forecasting firm, says the trend line for the Canadian economy is for continued improvement for the rest of the year, saying that the 0.8 per cent gross domestic product retreat in the first quarter was likely the low point.

"Stock markets don't cause recessions, they don't effect real economic growth that much," he said.

The sparring over the economy came as all three national parties began the second week of the campaign by proposing new spending commitments.

In St. John's, Dion unveiled a $70-million package for the troubled fishery, while committing another $100 million on small-craft harbours and on retiring commercial fishing licences in areas hardest hit by the collapse of fish stocks.

Meanwhile, the New Democrat's Layton was in Halifax pitching a $1-billion plan in Halifax to dramatically increase the number of nursing and medical students in Canada.

Layton said he would spend $200 million a year for five years to allow the number of medical students to increase by 1,200 annually and the number of nursing students by 6,000 a year.

With polls showing the Conservatives opening up a healthy lead in the first week, Harper continued his strategy of visiting ridings held by the opposition, this time in the Liberal-held riding of Ottawa-Vanier.

Holding an event at a local spa, the prime minister said his government would spend $150 million a year to extend parental leave for self-employed Canadians who don't qualify under the employment insurance system.