January 20, 2010 / 3:46 PM / in 8 years

CANADA STOCKS-TSX falls as China fears hit commodities

* S&P/TSX composite down 1.32 percent at 11,609.82

* Mining, energy shares lead TSX lower

* Barrick Gold, Suncor Energy lead decliners (Adds details, quotes)

By Claire Sibonney

TORONTO, Jan 20 (Reuters) - Toronto’s main stock index extended its fall on Wednesday morning, with materials and energy shares taking the biggest hit as commodity prices fell on fresh evidence of tightening credit in China.

In addition to dropping on concern about demand as credit tightens in China, oil and metal prices were weighed down by a a stronger U.S. dollar, which hit a five-month high against the euro. A higher greenback makes commodities, most of which are priced in U.S. dollars, more expensive, thereby reducing demand.

“China is taking some of the stimulus off, which makes sense, because last year they lent double what they lent in 2008,” said Laura Lau, senior portfolio manager at Sentry Select Capital Corp. “They are starting to see inflation.”

Two of the biggest drags on the index were Barrick Gold Corp (ABX.TO), the world’s largest gold producer, and Suncor Energy Inc (SU.TO), Canada’s biggest oil company. Barrick was down 4.08 percent at C$39.24, and Suncor fell 1.62 percent to C$36.33.

Gold prices gave way to unfavorable currency fundamentals and oil slipped below $78 a barrel after China ordered some big banks to curb lending, intensifying its efforts to prevent the world’s third-largest economy from overheating. [GOL/][O/R]

“The growth engine for commodities has been China, there’s no doubt about that. And generally OECD countries, even before the financial setback, have been using less and less,” Lau said.

At 10:38 a.m. (1538 GMT), the Toronto Stock Exchange’s S&P/TSX composite index .GSPTSE was off 153.60 points, or 1.32 percent, at 11,609.82.

The index’s financial sector was down 0.88 percent after quarterly results from three large U.S. banks increased uneasiness about the health of the financial services industry.

Shares of Bank of Nova Scotia (BNS.TO), Canada’s third largest bank, fell 1.6 percent to C$45.55.

$1=$1.05 Canadian Reporting by Claire Sibonney; editing by Peter Galloway

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