June 4, 2008 / 1:07 PM / 9 years ago

Toronto stocks likely to drop on lower commodities

3 Min Read

TORONTO, June 4 (Reuters) - Toronto stocks were poised to drop for a second session on Wednesday as falling commodity prices and the prospect of a stronger U.S. dollar weighed on the market.

Shares of Bombardier Inc (BBDb.TO), the world's top passenger train maker and No. 3 civil aircraft manufacturer, could take off after it reported a quarterly profit that nearly tripled as aircraft deliveries rose, prompting it to reinstate its quarterly dividend.

But Canadian oil companies, which account for about 30 percent of the market's overall weighting, were set to drop as the price for crude oil retreated to its lowest in about three weeks.

U.S. crude oil was down 0.4 percent at $123.85 a barrel after falling to $123.15 earlier in the day -- its lowest since mid-May -- ahead of weekly U.S. inventory numbers due out later in the day.

Investors are also expected to continue to key on comments from U.S. Federal Reserve chairman Ben Bernanke for indications of the powerful Fed's stance on interest rates.

Bernanke warned on Tuesday that the weakness of the U.S currency threatened to fuel inflation. Many saw this as confirmation that the Fed was finished with its rate-cutting cycle.

The Bank of Canada is set announce its latest interest decision next week and most expect it to cut rates by another 25 basis points to 2.75 percent.

The prospects of a stronger U.S. dollar does not bode well for Canada's resource sectors.

"It looks like Bernanke's comments will be the excuse (for a drop in the markets)," said John Ing, president at Maison Placements Canada. "With the possibility of a stronger U.S. dollar, inflation will be curbed and precious metals and oils will pull back."

Gold shares are also expected to be in the spotlight as the price for the precious metal slipped on a stronger U.S. dollar. The greenback and gold usually trade inversely to each other.

In individual company news, Harry Winston Diamond Corp HW.TO HW.TO reported a higher profit, helped by higher diamond prices, and said it was on track to meet its objective of increasing retail sales by more than 15 percent.

The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE begins the day at 14,728.61 after dropping 85 points in the previous session on lower energy and gold mining shares. ($1=$1.00 Canadian) (Reporting by Scott Anderson)

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