TSX heads lower following sharp gains on Fed rate commitment

TORONTO (NEWS1130) – The Toronto stock market fell back today as fresh worries about the European debt crisis helped stop a short-lived rally in its tracks.

The S&P/TSX composite index dropped 77.3 points to 12,032 and the junior TSX Venture Exchange gained 8.69 points to 1,719.92.

“The rally was rather short-lived, it’s now focusing on a loss of confidence,” said Kathryn Delgreco, investment adviser at TD Waterhouse.

“This market is not trading on fundamentals, it’s trading on fear.”

The Canadian dollar was down 1.3 cents to 100.86 cents US after the US Federal Reserve promised Tuesday to leave interest rates ultra-low until mid-2013. Investors believe the Fed’s stance on rates likely means the Bank of Canada is in no hurry to resume hiking interest rates. Markets had until recently expected that the central bank would start moving on rates this fall.

The dollar is down sharply from a recent high of just over 106 cents at the end of last month as investors flocked to the safety of US Treasurys and gold.

The main TSX index had soared 438 points Tuesday as investors bought up stocks beaten down during a market rout that carved 10 per cent from the TSX over the previous six sessions.

However, the central problems confronting markets remain: dwindling confidence in political leaders and central bankers to get a grip on the European government debt crisis and a growing conviction that the U.S. is sliding back into recession. A downgrade of US government debt by S&P last Friday served to further sour investor sentiment.

Problems in Europe were in focus today amid concerns that France could lose its AAA rating on government debt.

Some analysts have warned that France — the world’s fifth-biggest economy — can’t afford to keep bailing out poorer European states especially at a time when its growth rates are moderating.

In addition, “the French banks are under pressure today, there were rumours about Societe Generale running into liquidity issues, however, they came out and completely denied those rumours and still are maintaining that they have a triple A credit rating,” added Delgreco.

Those concerns pushed the TSX financial sector down 2.6 per cent as TD Bank (TSX:TD) fell $2.92 to $72.09 and Royal Bank (TSX:RY) dropped$1.50 to $48.74.

The energy sector was down almost one per cent while crude oil prices advanced after worries about slowing demand pushed prices down 20 per cent from a recent high of almost US$100 on July 26. Crude was up 85 cents on the Nymex to US$80.15 a barrel. Suncor Energy (TSX:SU) dropped 48 cents to C$30.52 and Cenovus Energy (TSX:CVE) lost 42 cents to $32.98.

The base metals sector lost two per cent as metal prices lost early gains and the September copper contract on the Nymex lost six cents to US$3.91 a pound. Thompson Creek Metals (TSX:TCM) gave back 48 cents to $7.32 while First Quantum Minerals (TSX:FM) fell 78 cents to $21.65.

Copper producer Quadra FNX Mining Ltd. (TSX:QUX) earned a second quarter profit of US$64 million or 33 cents a share, up from $37 million or 26 cents in the same period last year. Total revenues increased 76 per cent to $298 million from $169 million. Its shares were down 26 cents to $12.15.

The gold sector was the leading advancer as investors looking for a safe haven continued to push bullion prices further into record territory with the December contract on the New York Mercantile Exchange up $36.60 to US$1,779.60 an ounce. Barrick Gold Corp. (TSX:ABX) gained $1.52 to C$48.36 and Goldcorp Inc. (TSX:G) was ahead $1.52 to $48.76.

New York markets plunged, wiping out most of today’s gains with the Dow Jones industrials down 398.02 points to 10,841.75 following a 430-point jump.

The Nasdaq composite index lost 77.27 points to 2,405.25 while the S&P 500 index lost 38.77 points to 1,133.76.

There was plenty of other earnings news to digest:

Grocery chain Metro Inc. (TSX:MRU.A) reported that profits increased 4.1 per cent in the third quarter to $124.9 million or $1.21 a share on a slight uptick in sales. Results missed analyst expectations by a penny and its shares slipped 40 cents at $45.55.

Quebecor Inc. (TSX:QBR.B) said its profits fell to $55.2 million or 86 cents a share from $60.8 million a year ago as costs rose in the second quarter while the media company works on the launch of several new channels, including Sun News. Quebecor recorded revenues of $1.05 billion, a gain of $59.4 million from the same period last year and its shares gained $1.85 to $30.10.

Forest products company Cascades Inc. (TSX:CAS) handed in net income of $117 million in the second quarter, or $1.21 per share, a sharp improvement over the $28 million in net income a year ago. Cascades shares advanced 10 cents to $5.32.

Shares in hardware retailer Rona Inc. (TSX:RON) were down 52 cents to $10.20 after the home improvement retailer said profits tumbled to $37 million, or 28 cents per share, in the second quarter compared to $66.3 million or 51 cents per share a year earlier. Revenues slipped to $1.37 billion from $1.4 billion on “very poor weather conditions.”

Earlier in Asia, the Shanghai Composite Index rose 0.9 per cent and the smaller Shenzhen Composite Index gained 1.4 per cent. Indexes in Taiwan and India also gained. Hong Kong’s Hang Seng jumped 2.3 per cent.

Japan’s Nikkei 225 index climbed 1.1 per cent.

European markets turned negative as London’s FTSE 100 index declined 2.05 per cent, Frankfurt’s DAX fell 3.48 per cent and the Paris CAC 40 lost 4.6 per cent.