TORONTO (Reuters) - Canada's main stock index fell to a seven-month low on Wednesday after news that the European Central Bank had stopped funding operations for some Greek banks rattled financial markets, erasing resource gains on the back of strong U.S. economic data.
Markets retreated after the ECB confirmed a Reuters report that it had ceased providing liquidity to some of Greece's most undercapitalized banks, adding to concerns the debt-ravaged country may soon leave the euro zone.
After the news hit, Canadian Finance Minister Jim Flaherty told the Senate's banking committee: "These are not good developments, this can create a shock that will affect Canada.
Canadian stocks erased gains and traded weaker after the latest news from Europe, led by the heavyweight energy sector, which sank 0.7 percent.
"There's a fatigue over the price declines we've had in the materials/resource sectors which has been pretty dramatic," said Paul Hand, managing director at RBC Capital Markets.
Prominent decliners included Suncor Energy (SU.TO), down 1 percent to C$27.39, Cameco Corp (CCO.TO), which fell 2.1 percent to C$19.61, and Crescent Point Energy Corp (CPG.TO), sliding 2.9 percent to C$38.88.
Financial stocks edged down 0.4 percent, shrugging off efforts on Tuesday by German Chancellor Angela Merkel and new French President Francois Hollande to quell talk of a possible Greek exit from the euro zone.
Top insurer Manulife Financial (MFC.TO) was the biggest laggard, falling 3.3 percent to C$11.25. Major lenders Toronto-Dominion Bank (TD.TO) and Bank of Nova Scotia (BNS.TO) each slipped 0.3 percent to C$78.93 and C$52.36 respectively.
The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE closed down 16.97 points, or 0.15 percent, at 11,326.08. Earlier, it fell as low as 11,298.46, its lowest level since October 5.
The index continued its May swoon, sliding for the tenth time in 11 sessions. It has shed more than 8 percent so far this month.
Hand, however, said that makes the TSX overdue for a bounce.
"On a short-term basis we're getting quite oversold so a rally of some significance is probably pending," he added.
Early on Wednesday, the TSX rose as high as 11,474.05, spurred by data showing U.S. industrial production posted its fastest growth in over a year in April and a surge in groundbreaking for new homes that suggested a rebound in U.S. housing was gaining some traction.
Gains were led by the embattled mining sector, which rose 1.4 percent.
"The price of gold stocks relative to gold and metals is attractive," said Robert McWhirter, president and portfolio manager at Selective Asset Management Inc.
Barrick Gold (ABX.TO) climbed 1.4 percent to C$35.71 and Yamana Gold (YRI.TO) rose 2.7 percent to C$13.19. Other miners on the upside included First Quantum Minerals FM.TO, which spiked 5.3 percent to C$17.74, Inmet Mining IMN.TO, jumped 1.5 percent to C$46.22, and Osisko Mining Corp (OSK.TO) rose more than 4 percent to C$6.67.
Losing ground was Alacer Gold Corp (ASR.TO), whose shares plummeted more than 13 percent to C$4.96 on Wednesday after it raised its cash cost outlook for 2012 and two brokerages cut their price target on the stock.
Also boosting sentiment was Canadian data that showed factory sales blew past expectations in March with the biggest gain in six months due to vigor in the oil industry, putting the economy back on a growth track after a surprise contraction in February.
In other company news, shares of West Fraser Timber Co Ltd (WFT.TO) climbed 4.8 percent to C$44.70 after investment firm Raymond James raised the Canadian lumber company's stock to "outperform".
Editing by James Dalgleish