December 11, 2013 / 1:38 PM / in 4 years

Fed fears yank TSX to biggest drop in FIVE-1/2 months

TORONTO (Reuters) - Canada’s main stock index recorded its biggest single-day drop in about 5-1/2 months on Wednesday after a provisional U.S. budget agreement raised fears the U.S. Federal Reserve might soon begin to scale back its monetary stimulus program.

People walk past an electronic board displaying the midday TSX index in Toronto February 16, 2011. REUTERS/Mark Blinch

After three days of gains, the Toronto stock market’s benchmark index fell to its lowest level in about seven weeks, with every major sector ending in negative territory.

Adding impetus to the index’s dive was a 5.6 percent decline in shares of Encana Corp ECA.TO after the company released its 2014 production outlook, predicting lower-than-expected output of high-value natural gas liquids and oil. Falling natural gas prices contributed to the decline.

The bipartisan budget deal announced in the U.S. Congress on Tuesday marked the end of three years of gridlock and fiscal instability in Washington that culminated in October with a partial government shutdown.

But some investors were skeptical about the deal, and said the market had already factored any positive effects.

“All they are doing is kicking the can down the road,” said Gavin Graham, chief strategy officer at Integris Pension Management Corp.

He added that while it is possible the fiscal deal might result in the Fed stepping back from bond-buying if there is evidence the agreement will lead to a genuine longer-term reduction in spending and taxes, he wasn’t counting on it.

The Toronto Stock Exchange’s S&P/TSX composite index .GSPTSE closed down 190.59 points, or 1.43 percent, at 13,133.42.

Graham said he is bullish on index’s prospects next year as he sees sentiment for commodities improving. “Canada actually does better than the United States for the first time in four years,” he said.

The index’s energy group, down 1.6 percent, was hit by a drop in the price of U.S. crude oil. In the sector, Suncor Energy Inc SU.TO shed 1.5 percent to C$35.51, and Canadian Natural Resources Ltd CNQ.TO gave back 0.8 percent to C$34.49.

The materials sector, which includes mining stocks, was down 2.4 percent. Barrick Gold Corp ABX.TO lost 3.5 percent to C$17.29, and Teck Resources Ltd TCKb.TO declined 3.4 percent to C$24.67.

Shares of banks and insurers gave back 1.2 percent. Royal Bank of Canada RY.TO, the country’s No. 1 lender, fell 1.3 percent to C$68.45. Manulife Financial Corp MFC.TO shed 2.2 percent to C$19.69.

Canadian National Railway Co CNR.TO, the country’s largest rail operator, dropped 3.2 percent to C$57.65 and was the biggest contributor to the index’s decline.

($1=$1.06 Canadian)

Additional reporting by Scott Haggett in Calgary; Editing by Peter Galloway

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