October 19, 2010 / 9:21 PM / in 7 years

CANADA STOCKS-TSX falls as resources drop on China rate hike

 * TSX falls 0.77 percent to 12,570.55
 * Resources tumble on surprise Chinese rate hike
 * EnCana to kick off Canada’s earnings season on Wednesday  (Adds details)
 By Ka Yan Ng
 TORONTO, Oct 19 (Reuters) - Toronto’s main stock index fell sharply to a one-week low on Tuesday as resource shares bore the brunt of a selloff sparked by China’s unexpected decision to raise interest rates.
 The index’s heavily weighted energy and materials groups were the chief decliners, down 1.4 percent and 2.8 percent, respectively.
 Gold, base-metals and oil prices all tumbled, and the safe-haven U.S. dollar rose, as the first Chinese rate hike in nearly three years caught investors off guard and raised concern that the world’s fastest growing economy would start to cool. [ID:nSGE69I0HU]
 The price of oil swooned more than 4 percent to below $80 a barrel, suffering its biggest one-day percentage loss since February, while gold was knocked down as much as 2.7 percent. [O/R] [GOL/]
 “We had an increase in interest rates in China for the first time in a while. That’s putting a bit of concern that the brakes are going to be put on there, in terms of their growth,” said John Kurgan, senior market strategist at Lind-Waldock.
 “The commodity sectors for the most part took a hit here.”
 Key decliners were largely gold-mining stocks and big energy names. Barrick Gold (ABX.TO) fell 3.3 percent to C$46.91, while Goldcorp (G.TO) sagged 2.6 percent to C$43.45. Canadian Natural Resources (CNQ.TO) lost 1.4 percent to C$37.28, while Suncor Energy SU.TO slid 0.92 percent at C$34.32.
 “The market has been driven higher by looser monetary policy globally, but now China has surprised the market by tightening policy, that’s seen as a rethink on stocks and on gold prices, which have been driven higher by monetary stimulus,” said Fergal Smith, managing market strategist at Action Economics.
  Meanwhile, the Bank of Canada moved to the sidelines by leaving its benchmark interest rate unchanged at 1 percent, as expected, and surprised markets with a dovish statement in which it cut economic growth forecasts and suggested rates will stay on hold. [ID:nN19118876]
 The Toronto Stock Exchange’s S&P/TSX composite index .GSPTSE closed 97.46 points, or 0.77 percent, lower at 12,570.55 after dropping more than 1 percent earlier in the day. Half of the index’s 10 main groups closed lower.
 Also weighing on sentiment, results from U.S. technology titans Apple Inc (AAPL.O) and IBM (IBM.N) disappointed investors and raised doubts about the strength of third-quarter earnings. [.N]
 Financial shares clawed back into positive territory after tracking tumbling U.S. bank shares, which felt renewed pressure over mortgage foreclosures, earlier in the day. [ID:nN19106691]
 Canada’s six biggest banks all closed higher, with the index’s financials group up 0.4 percent, rising for a third straight session.
 Lind-Waldock’s Kurgan said the Toronto market’s retreat was long overdue, and that investors will be mindful of what earnings news Canadian companies will offer over the next several weeks. EnCana (ECA.TO) will start the burst of corporate results on Wednesday. 
 ($1=$1.03 Canadian)  (Additional reporting by Claire Sibonney; editing by Peter Galloway)                                        

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