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TORONTO (Reuters) - Canada's main stock index finished Monday's session slightly lower as the government's rejection of a foreign takeover bid for Progress Energy Resources Corp (PRQ.TO) vibrated through the energy sector, overshadowing gains in mining shares.
Oil and gas shares, which make up about 25 percent of the index, dominated the decliners after the government blocked Malaysian state oil firm Petronas's C$5.17 billion bid for Progress.
The index's energy group slid 1.43 percent, with all five top decliners in that sector.
Progress, which was also hit by a number of cuts by analysts in their share-price targets, sank 9.28 percent to C$19.64. Earlier, it dropped as low as C$18.78, or 13.26 percent.
"Are they (the Canadian government) saying the free market system is closed in Canada or are they going to come up with a better course of action?" asked Barry Schwartz, vice president and portfolio manager at Baskin Financial Services.
"This is a great lesson for investors: never buy stocks based on its takeover premium or takeover potential."
The surprise move blocking of the deal could be a harbinger of the government's attitude toward a C$15.1 billion offer by state-owned Chinese company CNOOC for oil producer Nexen Inc NXY.TO. Nexen was one of the most heavily weighted decliners on the index on Monday, falling 4.41 percent to C$24.04.
"The Nexen deal is a different cup of tea. But if I were one of the Nexen shareholders, I'd be a bit more nervous this morning than I was last week," said Levente Mady, vice president and senior portfolio manager at PI Financial Corp.
Encana Corp (ECA.TO) was the biggest negative driver on the TSX, giving back 3.95 percent to C$22.84, while Suncor Energy (SU.TO) was down 1.13 percent at C$33.38. Talisman Energy TLM.TO dropped 3.76 percent to C$12.55.
Schwartz noted that more money could now move to larger energy companies such as Suncor or Canadian Natural Resources (CNQ.TO), which have little chance of being taken over, as investors focus on fundamentals and cash flow. But he added: "I don't think the door's closed to takeovers."
The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE closed 12.44 points, or 0.1 percent lower, at 12,403.54. Six of the index's 10 main sectors advanced.
Agrium Inc (AGU.TO) shares were the most influential gainer, rising 3.18 percent to $107.26 after the Canadian fertilizer maker and agricultural goods retailer said on Monday its board plans to double its annual dividend payout.
Gold miners tracked rebounding bullion prices higher. Gold rose after its biggest one-day drop in more than three months on Friday. Agrium's gains and those of the precious metal miners pushed the overall materials group up 1.14 percent. Barrick Gold (ABX.TO) rose 1.30 percent to C$39.05.<GOL/>
"I think it's healthy today what we're seeing. Sure the whole energy complex is down, but you can find stocks that are maintaining their own or being positive today," Schwartz said.
In corporate news, Enbridge Inc (ENB.TO), Canada's second-largest pipeline company, said it will buy some gas facilities from Encana in the Peace River Arch region in northwestern Alberta to strengthen its natural gas gathering and compression business. Enbridge stock was off 0.58 percent at C$39.33.
Additional reporting by John Tilak; Editing by Peter Galloway