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TORONTO (Reuters) - Canada's main stock index kept its head above water on Monday, buoyed by higher oil prices, but gains were offset by financial sector losses spurred by weak U.S. retail sales data and concerns about crucial euro zone bailout funds.
U.S. oil prices were lifted by hopes that signs of economic slowing will prompt stimulus measures, especially in China. Another factor was escalating tensions in the Middle East, after a U.S. Navy vessel near the United Arab Emirates fired on a small boat that failed to heed warnings. <O/R>
Canada's heavyweight energy sector rose 0.8 percent to lift the broader index into positive territory. Leading the way was Suncor Energy (SU.TO), the country's largest oil and gas company, which climbed 1 percent to C$29.72.
Shares of MEG Energy Corp (MEG.TO) jumped more than 7 percent to C$38.05 after the company said on Monday it would boost capital spending by C$380 million ($374.1 million) this year as it looks to raise output from its existing oil sands operations by a third.
Oil and gas shares got a boost from remarks by Chinese Premier Wen Jiabao, who said Beijing would step up efforts to boost the economy in the aftermath of Friday's second-quarter GDP figures that showed the world's second-largest economy is slowing.
Gains were held in check, however, as more worrying data came in from Canada's largest trading partner. U.S. retail sales fell 0.5 percent in June, the third straight month of decline, as demand slumped for everything from cars to electronics and building materials, a sign the U.S. economic recovery is flagging.
"Consumers in the U.S. continue to pay down their debt and de-leverage and when they're doing that, having weaker sales is not unexpected," said Arthur Salzer, chief executive officer of Northland Wealth Management.
Markets looked ahead to Federal Reserve Chairman Ben Bernanke's semiannual testimony before congressional panels on Tuesday and Wednesday. Investors will parse his words for clues about the possibility and timing of another round of stimulus from the U.S. central bank.
"It's like when you've got a patient who is losing blood and if you don't keep putting plasma and blood into the patient, you end up with a coronary arrest," said Salzer. "The Fed is pulling out most of the stops to keep the consumer in the U.S. alive."
Six of Canada's 10 main sectors were lower. The financial index led losses, falling 0.2 percent.
The biggest decliners included Royal Bank of Canada (RY.TO), off 0.6 percent at C$52.18, Manulife Financial Corp (MFC.TO), down 1.5 percent to C$10.72, and Bank of Nova Scotia (BNS.TO), which slipped 0.2 percent to C$52.13.
The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE closed up 6.65 points, or 0.1 percent, at 11,521.18.
European equities were hurt by a report in The Wall Street Journal that said European Central Bank President Mario Draghi advocated imposing losses on holders of senior bonds issued by the worst hit Spanish savings banks.
The ECB declined to comment on the report, which also said finance ministers rejected the advice due to concerns financial markets would react badly to such a decision.
"So far as the ECB is considering forcing bondholders to share in losses, that's a negative for financials," said Fergal Smith, managing market strategist at Action Economics.
Financial markets were also disappointed by news that Germany's Constitutional Court will take a couple months to reach a verdict on whether the euro zone's bailout fund, the European Stability Mechanism, is compatible with German law.
The heavily-weighted materials group, which includes miners, edged down 0.1 percent as base metals prices dipped on global demand worries. <GOL/> <MET/L>
Editing by Gary Crosse