CANADA STOCKS-TSX slides as stimulus hopes dim; Rona caps losses

Tue Jul 31, 2012 5:02pm EDT
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* TSX ends down 93.17 points, or 0.8 pct, at 11,664.71
    * Index still up 0.6 percent in July
    * Energy, mining shares fall with commodities prices
    * U.S. data dims Fed stimulus hopes
    * Rona Inc up 13 pct after takeover bid

    By Jon Cook
    TORONTO, July 31 (Reuters) - Canadian stocks had their
biggest one-day drop in more than two weeks on Tuesday, led by
energy and mining shares, as hopes dimmed that the U.S. Federal
Reserve would announce new stimulus measures at its policy
meeting this week.
    A more than 13 percent surge in the shares of
home-improvement retailer Rona Inc after a takeover bid
from a U.S. rival helped limit losses.
    Despite the day's decline, the TSX still ended July up 0.6
percent, its second straight monthly increase after a dismal
    Equities have rallied recently on expectations that the Fed
and the European Central Bank would announce new measures to
stimulate growth at their policy meetings this week. The U.S.
central bank began its two-day meeting on Tuesday, and the ECB
will meet on Thursday. 
    But better-than-expected U.S. housing and manufacturing data
on Tuesday helped lower expectations the Fed would announce new
stimulus plans when it issues its policy statement on Wednesday.
    "It was a lot of motion, but very little action," said John
Ing, president of Maison Placements Canada. "Central bankers
always hold out hope as a carrot, hoping the markets will accept
that in place of actually substantive policy moves."
    Single-family home prices rose for the fourth month in a row
in May, and the pace of business activity in the U.S. Midwest
picked up in July. Separate government data showed spending by
American consumers fell in June for the first time in nearly a
    "The numbers are not good enough to dance from the rooftops
and they're not bad enough for full-scale,
all-hands-on-deck-type money printing," said Barry Schwartz,
vice president and portfolio manager at Baskin Financial
    Brokers and traders also cited pressure from news that
Germany's Finance Ministry reiterated its view that there is no
need to grant a banking license to the euro zone's new bailout
fund. Such a move could enable the fund to buy large amounts of
debt issued by troubled euro zone economies.    
    The Toronto Stock Exchange's S&P/TSX composite index
 finished down 93.17 points, or 0.8 percent, at
11,664.71. It was the index's biggest single-day percentage
decline since July 12.
    Losses were led by the powerhouse energy sector, which slid
1.2 percent as U.S. oil prices retreated from earlier gains on
the reduced prospects of more Fed easing. 
    The biggest decliners included Suncor Energy, down
2.3 percent to C$30.66 and Canadian Natural Resources,
off 2.8 percent at C$27.35.
    Enbridge Inc shares fell 1.9 percent to C$41.03
after the U.S. government blocked the oil producer from
restarting a key pipeline on Tuesday, saying last week's spill
on the line was "absolutely unacceptable." 
    Heavily weighted materials, which includes miners, sank 1.4
percent. Potash Corp fell 1.3 percent to C$44.40 and
Teck Resources dropped 3 percent to C$28.13. Gold
miners were also weaker, led by Eldorado Gold, which
tumbled 4.7 percent to C$10.85 after its share price outlook was
cut by Royal Bank of Canada on Tuesday. 
    On a positive note for resource companies, shares of Inmet
Mining Corp rose almost 5 percent to C$39.89 a day
after the Canadian base metal miner reported a 74 percent
increase in second-quarter profit. 
    Tuesday's declines were stemmed by Rona. Shares of the
struggling Canadian retailer were up nearly 14 percent at
C$13.50 after the company rejected American rival Lowe's Cos
Inc's C$1.8-billion ($1.8 billion) bid. 
    "This is a takeover that has been talked about ever since
Lowe's stepped into Canada many years ago," said Schwartz. "Any
investor who has bought Rona's stock over the past couple years
has got their head handed to them. My mind is boggled as to why
Rona is not accepting the deal."
    Boucherville, Quebec-based Rona has struggled as Home Depot
 and Lowe's have made inroads into its home turf.
    Canadian financial shares were flat as losses by banks were
offset by life insurers, on optimism that ECB President Mario
Draghi could announce plans to lower Spanish and Italian
borrowing costs by buying those countries' bonds.
    Sun Life Financial led gains, rising 1.2 percent to
C$21.78. The Canadian life insurer is due to report
second-quarter results next week.