January 25, 2013 / 1:27 PM / in 5 years

Gold miners lead TSX lower after nearing 18-month high

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

TORONTO (Reuters) - Canada's main stock index dipped lower on Friday as falling bullion prices pressured gold miners and investors paused following a steady climb this year to near 18 month highs.

The index, which has risen 3.1 percent since the new year, touched its highest level since August 2, 2011 earlier in the session before retreating. In the United States, the benchmark S&P 500 saw its eighth straight day of gains and closed above the 1,500 level for the first time in more than five years.

"To see a pause on today is not a surprise. We've had a very healthy move in the market year-to-date," said Jeff Bradacs, a portfolio manager at Manulife Asset Management.

"That's been driven by both good economic data in the U.S., signs of encouragement with the housing market. Also we've seen good earnings."

Of the S&P 500 companies that have reported results so far this quarter, nearly 70 percent reported better-than-expected earnings, according to Thomson Reuters data.

The Toronto Stock Exchange's S&P/TSX composite index .GSPTSE finished down 6.99 percent, or 0.05 percent at 12,816.63. The index added 0.7 percent for the week.

Four of the index's 10 main sectors ended in negative territory.

Six of the top seven biggest drags in the index were gold miners. Kinross Gold Corp (K.TO) led, slumping 4.7 percent to C$8.58, while Goldcorp Inc (G.TO) fell 1.6 percent to C$35.81. Eldorado Gold Corp (ELD.TO) tumbled 5.3 percent to C$11.55 and Barrick Gold Corp (ABX.TO) was off 1.3 percent at C$33.02.

Overall gold stocks were down 2.2 percent, while the overall materials group, which includes mining firms, was down 1.1 percent.

Gold prices fell as the U.S. dollar strengthened and after the European Central Bank said banks would repay 137 billion euros ($183.2 billion) in cheap loans, opting to hand back early more cash than expected.

The move reassured investors the euro zone banking system is stabilizing but undermined their interest in bullion as a hedge against risk.

"The pullback in gold is for good reason today because the LTRO (long-term refinancing operations) repayment has signaled shrinkage in the ECB balance sheet. That's the opposite of what's been happening over the last few years," said Fergal Smith, managing market strategist at Action Economics.

Positive investor sentiment from the bank repayments and news that business morale in the continent's biggest economy, Germany, improved for a third consecutive month in January, helped stem some of the losses.

"We think it will be another good year for equities -- it might be a bumpy ride, but still a positive ride," said Bradacs.

Oil prices, which finished a seventh consecutive positive week, initially rose on encouraging economic data before investors booked profits. Energy stocks climbed 0.3 percent. <O/R>

Potash Corp (POT.TO) was the most positive stock on the index, rising 3.1 percent to C$43.93. The fertilizer giant extended Thursday's gains after fellow fertilizer maker, Agrium, raised its profit forecast amid expectations for higher fertilizer demand.

In corporate news, Pacific Rubiales Energy Corp PRE.TO ended 3.6 percent higher at C$23.26, following its announcement that it has discovered oil in Brazil.

Telecom company, Telus Corp (T.TO), said on Friday it had settled a dispute with U.S. hedge fund Mason Capital Management LLC, and will go ahead with a share consolidation plan in February. Telus' voting shares were off 1.1 percent at C$65.03.

Editing by Jeffrey Hodgson and Kenneth Barry

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