Eurozone government debt crisis anxiety pulls Toronto stock market lower

TORONTO – The Toronto stock market closed lower Thursday as worries about the worsening European debt crisis pressured resource stocks and again drove metal prices lower.

The S&P/TSX composite index was well off the highs of the day, down 47.34 points to 12,108.87.

The market had been up more than 100 points in the early going amid reports of new leadership for debt-plagued countries Italy and Greece. Those gains disappeared following reports that France could have its credit rating placed on negative credit watch by one of the big ratings agencies.

“That turned the market on a dime,” said Alison Mendes, portfolio manager at Manulife Asset Management.

“Remember, this is a market where speculators are completely in control.”

Standard & Poor’s later said it has not actually lowered the credit ratings for France, clarifying what it says was an accidental transmission of a message to some subscribers that it had downgraded the nation’s credit.

The TSX Venture Exchange was up 3.56 points to 1,624.56.

The Canadian dollar was up 0.38 of a cent to 98.26 cents US.

U.S. markets fared far better amid an unexpected drop in unemployment claims last week and the Dow industrials jumped 112.92 points to 11,893.86, the Nasdaq gained 3.5 points at 2,625.15 and the S&P 500 index was 10.6 points higher at 1,239.7.

Risk appetite had earlier picked up on the TSX amid speculation that a technocratic government led by economist Mario Monti would replace Italian Prime Minister Silvio Berlusconi.

Italy’s borrowing costs eased somewhat after spiking Wednesday as markets lost confidence that Berlusconi could impose the tough austerity measures needed to keep Europe’s third-largest economy from defaulting on its US$2.6-trillion debt.

And former European Central Bank vice-president Lucas Papademos has been officially named the new prime minister of Greece. He replaces George Papandreou who stepped down in the wake of an ill-starred attempt to put his country’s bailout plan to a referendum.

The appointment of Papademos as the new Greek PM came after four days of intense talks to form a coalition government. The interim government aims to approve a new €130 billion financial aid deal.

Stock markets fell heavily Wednesday as traders sold off anything risky on the feeling that Europe’s debt crisis is worsening amid a failure of political leaders to come up with a convincing plan to backstop heavily indebted countries like Italy and Greece.

“We’re approaching the point where the European Central Bank has to step up to the plate and accept its role as the lender of last resort,” Mendes said.

“The issue for investors is how much more volatility and turmoil is it going to take before the ECB shows its hand.”

The yields on Italy’s benchmark 10-year bond surged well above the seven per cent threshold Wednesday, a level many economists view as unsustainable. Yields rise as bond prices fall.

But tensions eased on news that Italy easily sold €5 billion in 12-month bonds at borrowing rates of 6.087 per cent. That was up sharply from 3.57 per cent in the previous such auction last month but well below analyst expectations of seven per cent.

Italy also reportedly plans to approve economic austerity legislation by Sunday.

Mining stocks were the biggest drag on the TSX as metal prices headed sharply lower with the December copper contract down nine cents to US$3.35 a pound on top of a nine-cent slide Wednesday. The TSX mining sector was off 2.48 per cent as Ivanhoe Mines (TSX:IVN) was down 76 cents to C$20.38 while First Quantum Minerals (TSX:FM) shed $1.56 to C$18.20.

The gold sector was down almost one per cent as bullion prices declined, with the December contract falling $32 to US$1,759.60 an ounce.

“Gold and silver are sharply lower as risk avoidance is driving investors into other more stable areas and other investors (are) selling their profitable gold positions to pay margin calls in other commodities,” observed Bob Tebbutt, vice-president at Peregrine Financial Group.

“The longer term outlook in copper has been clouded by the concerns over Europe but the supply/demand situation for the… metal is still tight,” he added

Goldcorp Inc. (TSX:G) faded 55 cents to C$52.30 and Kinross Gold Corp. (TSX:K) was down 34 cents to $14.06.

The financial sector lost 0.64 per cent with CIBC (TSX:CM) down $1.19 to C$71.45 while Manulife Financial (TSX:MFC) slipped 10 cents to $12.01.

The tech sector also pressured the TSX as shares in Research In Motion lost ground for a fourth day, losing 54 cents to $17.87.

Oil prices recovered from sharp price drops Wednesday on worries that a worsening European debt crisis will push the region into recession and derail the fragile global economic recovery. A worsening of economic conditions would slash demand for oil and metals, which support higher stock prices on the resource-heavy TSX.

The December crude contract on the New York Mercantile Exchange gained $1.38 to US$97.12 a barrel and the TSX energy sector rose 0.21 per cent. Suncor Energy (TSX:SU) gained 17 cents to C$31.61 and Talisman Energy (TSX:TLM) advanced 20 cents to $13.96.

The industrials sector was the strongest advancer as Canadian National Railways (TSX:CNR) gained $1.53 to $80.59.

Shares in pipeline company TransCanada (TSX:TRP) declined 73 cents to $39.85 after the U.S. State Department said it wants to find a different, less controversial route for TransCanada’s proposed Keystone XL pipeline, a decision that will delay the $7-billion project for months, if not kill it outright. Its current proposed route traverses the Ogallala aquifer in Nebraska, a crucial source of drinking water to millions on the Great Plains.

It was another busy day for earnings reports.

Copper producer Quadra FNX Mining Ltd. (TSX:QUX) reported it earned nearly US$142.8 million or 75 cents a share in the three months ended Sept. 30. That compared with earnings of $19.5 million or 10 cents last year. Revenues rose to $326.2 million from $259.2 million as the company benefited from higher metals production. Its shares added nine cents $10.95.

Shares in coffee and doughnut chain operator Tim Hortons Inc. (TSX:THI) rose 55 cents to $50.09 as it said profits soared 40 per cent in the third quarter to $103.6 million. Revenues totalled $726.9 million, up from $670.5 million. Same-store sales, a key metric measuring results from stores open at least a year, were up 4.7 per cent in Canada and 6.3 per cent in the United States.

Tissue and cardboard maker Cascades Inc. (TSX:CAS) lost $19 million in the third quarter as the company booked special charges for restructuring investment losses and other things. Sales for the three months rose 14 per cent to $947 million from $832 million and its shares were unchanged at $4.65.

The owner of the controversial New Prosperity copper project in British Columbia, Taseko Mines Ltd. (TSX:TKO), had a $30-million profit in the third quarter. The results came a day after Ottawa gave the Vancouver-based company a chance to revive the $1.2-billion proposal, which had been blocked over environmental concerns last year. Taseko shares were down seven cents to $3.42.

Cisco Systems Inc., the world’s largest maker of computer networking gear, is showing signs of pulling a turnaround, exceeding analyst sales expectations for the second quarter in a row. Cisco posted net income of US$1.8 billion, which compared with $1.9 billion a year ago.

Revenue grew nearly five per cent from last year to $11.3 billion and Cisco shares climbed $1 to US$18.61.