May 24, 2012 / 12:42 PM / in 5 years

TSX flat as gold gains offset weak global data

A Toronto Stock Exchange (TSX) logo is seen in Toronto November 9, 2007.Mark Blinch

TORONTO (Reuters) - Canadian stocks were little changed in choppy trade on Thursday as gold mining gains offset a slew of weak data from Europe, China and the United States, which added to fears about global growth.

U.S. financial markets will have a long weekend, closing on Monday for the Memorial Day holiday.

On Wednesday the Toronto Stock Exchange's S&P/TSX composite index .GSPTSE rallied 300 points to finish sharply higher. Twenty-four hours later another late-afternoon surge in gold mining stocks helped the index avert a loss and end up for the third day in a row.

"The swings are showing how nervous the European situation is overshadowing our markets," said Rick Meslin, head of Canadian equities at UBS Securities Canada. "It can be great news or awful news and it happens moment by moment."

On Thursday, markets were boosted late by comments from Italian Prime Minister Mario Monti, who said in an interview on a television talk show that he believed Greece would remain in the euro zone.

The TSX finished up 1.27 points, or 0.01 percent, at 11,566.07, rebounding nearly 100 points after hitting a session low at 11,472.75. It was also its highest close in 10 days.

Gains were led by the heavyweight materials sector, which includes gold miners, which rose 0.7 percent. Gold stocks rallied for the second straight day as bullion halted its three-day slide, boosted by International Monetary Fund data showing another rise in central bank gold holdings in April. <GOL/>

The most influential gainers included Iamgold Corp (IMG.TO), up 5.3 percent at C$11.00, Eldorado Gold (ELD.TO), which climbed 2.4 percent to C$11.96 and Kinross Gold (K.TO), up 2 percent to C$8.65.

Meslin said increased uncertainty about whether Greece, which has elections next month, will stay in the euro zone had investors treating gold as a safe-haven play.

"Gold is turning into again just what gold always used to be, which is that safety trade," he said. "There has been so much correction in gold shares that finally now when things are bad in Europe you see gold react well."

Investor confidence was still shaky after Wednesday's news that European Union leaders have been advised by senior officials to prepare contingency plans in case Greece quits the single currency.

Sentiment worsened after PMI data for the euro zone region showed activity was declining at a faster pace than expected in May.

Manufacturing output also slowed in the world's two largest economies. China's industrial sector retreated to 48.7 in May from a final reading of 49.3 in April and a U.S. manufacturing index dipped to 53.9 in May from 56.0 the previous month.

"The euro crisis could hit Canada fairly hard," Paul Taylor, chief investment officer at BMO Harris Private Banking, said in a conference call on Thursday. "Global financial market angst would cause a fairly significant risk-off trade and this would affect us here disproportionately."

Taylor also said a Greek exit from the euro could cause the TSX to slide "another 8-10 percent."

Canadian financial shares fell 0.7 percent after some mixed second-quarter earnings results from the country's top lenders. Toronto-Dominion Bank (TD.TO) shares rose 0.3 percent to C$78.99 after Canada's No. 2 bank said on Thursday its quarterly profit rose 20.7 percent.

However, gains were muted by Royal Bank of Canada (RY.TO), which tumbled nearly 3 percent to C$51.38 after Canada's largest bank reported a 7 percent decline in quarterly earnings on Thursday.

Both banks' share prices are now trading below year-ago levels as the earnings growth environment has cooled.

"They're not going to blow up," said Meslin, adding UBS is "overweight" on its investment in Canadian banks. "But it doesn't mean they continue to go up."

In other news, Canadian Pacific Railway (CP.TO) shares rallied 3 percent to C$77.25 after Canadian Labour Minister Lisa Raitt said the government could order the railway's striking employees back to work as early as Monday. About 4,800 CP Rail locomotive engineers, conductors and traffic controllers walked off the job on Wednesday after contract talks broke down.

($1=$1.03 Canadian)

Additional reporting by Claire Sibonney; Editing by Kenneth Barry, Gary Crosse

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