May 14, 2012 / 12:42 PM / in 6 years

TSX breaches key level, hits 2012 low

TORONTO (Reuters) - Canada’s resource-heavy main stock index tumbled to a 2012 low on Monday with mining and energy firms selling off as investors fretted about the impact of worsening political turmoil in Greece and signs of weakening Chinese growth.

Greece’s anti-bailout, radical leftist SYRIZA party rejected a proposal by the country’s president for the creation of a government of technocrats to avoid a repeat election in a few weeks, escalating worries Greece could leave the euro zone.

The news sent Canadian stocks careening below 11,500 - a key technical support level that was last breached in mid-December.

“Breaking 11,500 is certainly a signal that the market is vulnerable for another 250 points on the downside,” said Ron Meisels, president and chief technical analyst at Phases & Cycles Inc.

All of Canada’s 10 main sectors were in the red. The materials and energy groups both fell at least 3 percent as oil, copper and gold sank to multi-month lows.

Decliners included Goldcorp Inc, down 3.7 percent at C$33.62, Potash Corp, down 1.8 percent to C$40.28, Suncor Energy, down 2.6 percent to C$27.99, Canadian Natural Resources, off 2.4 percent at C$30.25, and Cenovus Energy, which dropped 2.6 percent to C$32.10.

The Toronto Stock Exchange’s S&P/TSX composite index finished down 206.14 points, or 1.8 percent, at 11,488.53, its lowest close since November.

The index has fallen nearly 7 percent this month and market watchers expect it could slide even further as conditions in Europe unravel.

“This massive risk aversion is hitting markets everywhere, triggered by Europe and Greece,” said Carlos Leitao, chief economist at Laurentian Bank Securities.

Greece’s troubles also helped drive up Spain’s and Italy’s borrowing costs.

Compounding the picture for investors was data that showed output at factories in the euro zone unexpectedly fell in March, the latest in a series of disappointing numbers signaling the bloc’s recession may not be as mild as policymakers hope.

Signs of a struggling Chinese economy also chilled investor sentiment. China, the world’s second-biggest economy, cut bank reserve requirements on Saturday to free up an estimated 400 billion yuan ($63.5 billion) for lending in a bid to avert a sudden slowdown.

Shares of fertilizer producer Agrium sank 3 percent to C$81.05. Agrium was also impacted after the province of Saskatchewan said on Friday it wants Ottawa to impose conditions on Glencore’s C$6.1 billion ($6.12 billion) takeover bid for Viterra Inc. Glencore plans to sell parts of Viterra, the country’s top grain handler, based in Saskatchewan, to Agrium.

Silver Wheaton Corp’s shares tumbled 7.4 percent to C$24.48 after the world’s largest silver stream company reported a 20 percent increase in first quarter earnings on Monday, but still failed to beat analysts’ expectations.

Also, miner First Quantum Minerals slid 5 percent to C$17.35 after it was reported on Monday that the copper miner had acquired a near 20 percent ownership stake in Zincore Metals.

Financial stocks sagged 1.1 percent as threats to Greece’s bailout package raised the likelihood of a default by the debt-ravaged country. Although Canada’s banking sector has far less exposure to Greek and other euro zone debt holdings than its global counterparts, it would still be caught in the fallout.

Declines were led Royal Bank of Canada, down 1.4 percent to C$53.22, Bank of Nova Scotia, which fell 1 percent to C$52.50, and top insurer Manulife Financial, off 2.9 percent at C$12.

Looking ahead, Leitao said there was little data due this week that could shake the market’s negative momentum, which has seen the TSX close lower in eight of its last nine sessions. However, he said Canadian existing-home sales data due on Tuesday had the potential to surprise to the upside.

“If we have another big number that goes along the same direction as the housing starts of last week, that could feed into the stronger employment numbers and may suggest that the Canadian economy is still very strong.”

($1=$1 Canadian)

Editing by Kenneth Barry

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