TORONTO (Reuters) - Canadian stocks ended lower on Thursday after the head of the European Central Bank offered a bleak outlook for Europe’s financial markets and did not signal more aggressive action to ease the region’s debt crisis.
And in an ominous sign heading into an EU summit on Friday, Germany rejected draft proposals that would increase the euro zone’s firepower in dealing with the credit crisis, triggering a steep selloff in global stocks.
“The main concern is what happens in Brussels, so people are quite nervous,” said Irwin Michael, portfolio manager at ABC Funds. “We need some constructive news coming out of Europe.”
Toronto’s heavyweight materials sector fell 2.4 percent as the price of gold and base metals dropped sharply.
Fertilizer producer Potash Corp (POT.TO) sank 4.8 percent to C$41.96 and played the biggest role of any stock in leading the sector and market lower.
Energy stocks also slid, hurt by a 2 percent drop in oil prices.
Suncor Energy (SU.TO) was the biggest drag on the sector, falling 3.2 percent to C$29.54, helping push down the broader energy sector by 2.5 percent. Canadian Natural Resources CNQ.TO sank 3.1 percent to C$37.08.
The Toronto Stock Exchange’s S&P/TSX composite index .GSPTSE ended the day down 196.94 points, or 1.62 percent, at 11,951.79. Nine of the index’s 10 main sectors were lower. Utilities rose 0.09 percent.
The blue chip S&P/TSX 60 index .TSE60 closed down 11.53 points, or 1.67 percent, at 678.17.
“Keep in mind we’re completing our first week of December. A lot of institutions are basically shutting down for the year,” said Michael.
“So the markets are getting thinner and thinner and if there’s anything positive or negative in the market it has an immediate reaction. Because the markets are getting thinner and thinner the reaction quite often can be dramatic.”
The Toronto market followed global stocks lower as the European Central Bank rattled financial markets by dampening hopes for dramatic crisis-fighting action in the euro zone hours before European leaders gather on Friday for what the French president billed as a last chance summit.
ECB President Mario Draghi dimmed market expectations that the bank would massively step up buying of government bonds if European Union leaders agreed on moves toward closer fiscal ties.
After two years of enduring the credit crisis, the market is clearly looking for a definite move toward quantitative easing, said Sid Mokhtari, market technician and director, institutional equity research, CIBC World Markets.
“If they don’t do this we’re going to get, one, a massive correction in the market and, two, we’re going to get a potential assumption for a deeper recession in the European community,” he said.
“I think it’s reasonable to say the market is telling these guys, ‘get your act together, get your house in order’.”
While the TSX index suffered a blow on Thursday, Mokhtari said it appeared to be holding up as it hovered near key technical levels.
“We’re sitting above our 20 day, which is your monthly moving average, and 50 day, which is your quarterly moving average. As it stands, the spread between moving averages is in good standing. In other words, we do have positive momentum in the market, despite the fact that price action today is ugly,” he said.
The moving averages were seen holding between index levels of 11,942 and 11,981 points. If there’s a breach below those levels, the TSX composite could drop to trend line support of 11,570, said Mokhtari.
Editing by Jeffrey Hodgson and Rob Wilson