TORONTO (Reuters) - Canadian stocks had their biggest one-day drop in more than two weeks on Tuesday, led by energy and mining shares, as hopes dimmed that the U.S. Federal Reserve would announce new stimulus measures at its policy meeting this week.
A more than 13 percent surge in the shares of home-improvement retailer Rona Inc RON.TO after a takeover bid from a U.S. rival helped limit losses.
Despite the day’s decline, the TSX still ended July up 0.6 percent, its second straight monthly increase after a dismal May.
Equities have rallied recently on expectations that the Fed and the European Central Bank would announce new measures to stimulate growth at their policy meetings this week. The U.S. central bank began its two-day meeting on Tuesday, and the ECB will meet on Thursday.
But better-than-expected U.S. housing and manufacturing data on Tuesday helped lower expectations the Fed would announce new stimulus plans when it issues its policy statement on Wednesday.
“It was a lot of motion, but very little action,” said John Ing, president of Maison Placements Canada. “Central bankers always hold out hope as a carrot, hoping the markets will accept that in place of actually substantive policy moves.”
Single-family home prices rose for the fourth month in a row in May, and the pace of business activity in the U.S. Midwest picked up in July. Separate government data showed spending by American consumers fell in June for the first time in nearly a year.
“The numbers are not good enough to dance from the rooftops and they’re not bad enough for full-scale, all-hands-on-deck-type money printing,” said Barry Schwartz, vice president and portfolio manager at Baskin Financial Services.
Brokers and traders also cited pressure from news that Germany’s Finance Ministry reiterated its view that there is no need to grant a banking license to the euro zone’s new bailout fund. Such a move could enable the fund to buy large amounts of debt issued by troubled euro zone economies.
The Toronto Stock Exchange’s S&P/TSX composite index .GSPTSE finished down 93.17 points, or 0.8 percent, at 11,664.71. It was the index’s biggest single-day percentage decline since July 12.
Losses were led by the powerhouse energy sector, which slid 1.2 percent as U.S. oil prices retreated from earlier gains on the reduced prospects of more Fed easing. <O/R>
Enbridge Inc (ENB.TO) shares fell 1.9 percent to C$41.03 after the U.S. government blocked the oil producer from restarting a key pipeline on Tuesday, saying last week’s spill on the line was ”absolutely unacceptable.
Heavily weighted materials, which includes miners, sank 1.4 percent. Potash Corp POT.TO fell 1.3 percent to C$44.40 and Teck Resources TCKb.TO dropped 3 percent to C$28.13. Gold miners were also weaker, led by Eldorado Gold (ELD.TO), which tumbled 4.7 percent to C$10.85 after its share price outlook was cut by Royal Bank of Canada (RY.TO) on Tuesday.
On a positive note for resource companies, shares of Inmet Mining Corp IMN.TO rose almost 5 percent to C$39.89 a day after the Canadian base metal miner reported a 74 percent increase in second-quarter profit.
Tuesday’s declines were stemmed by Rona. Shares of the struggling Canadian retailer were up nearly 14 percent at C$13.50 after the company rejected American rival Lowe’s Cos Inc’s (LOW.N) C$1.8-billion ($1.8 billion) bid.
“This is a takeover that has been talked about ever since Lowe’s stepped into Canada many years ago,” said Schwartz. “Any investor who has bought Rona’s stock over the past couple years has got their head handed to them. My mind is boggled as to why Rona is not accepting the deal.”
Boucherville, Quebec-based Rona has struggled as Home Depot (HD.N) and Lowe’s have made inroads into its home turf.
Canadian financial shares were flat as losses by banks were offset by life insurers, on optimism that ECB President Mario Draghi could announce plans to lower Spanish and Italian borrowing costs by buying those countries’ bonds.
Sun Life Financial (SLF.TO) led gains, rising 1.2 percent to C$21.78. The Canadian life insurer is due to report second-quarter results next week.
Editing by Leslie Adler