CANADA STOCKS-TSX drops on emerging market fears; TransCanada up

* TSX falls 40.34 points, or 0.29 percent, to 13,694.94
    * Eight of the 10 main index sectors decline
    * TransCanada climbs after Keystone pipeline report
    * CN Rail up after quarterly report

    By John Tilak
    TORONTO, Jan 31 (Reuters) - Canada's main stock index fell
on Friday on worries about emerging markets and on mixed U.S.
and European economic data, which offset a gain in TransCanada
Corp after a U.S. report played down the impact
building the company's Keystone XL pipeline would have on
Canadian oil sands development.
    The U.S. State Department report raised the pressure on
President Barack Obama to approve the TransCanada project, which
environmentalists oppose strongly, saying it will increase the
pace of climate change by encouraging oil sands growth.
    Also hurting the market, data from the euro zone showed
inflation fell in January, missing market expectations and
coming in below the European Central Bank's target.
    In the United States, figures showed U.S. consumer spending
rose more than expected in December, but weak income growth
suggested the world's biggest economy could cool off in the
first quarter. 
    Global markets have had a turbulent ride in recent days as
volatility in some emerging market currencies and doubts about
the pace of China's economic growth has hit investor sentiment
hard. The U.S. Federal Reserve's decision to further scale back
its stimulus program exacerbated the emerging markets concern as
the stimulus program has helped supply liquidity to emerging
    The Toronto Stock Exchange's benchmark index ended a choppy
week in the red, capping off a string of steep dives and sharp
gains. But the index recorded a monthly rise, outperforming U.S.
stocks, helped by an improved showing by its materials sector.
    "Globally volatility has definitely picked up in the last
couple of weeks," said Youssef Zohny, a portfolio manager at
Stenner Investment Partners, a multifamily office within
Richardson GMP.
    "But commodities are definitely leading to some
outperformance in the Canadian market," he added.
    The benchmark S&P/TSX composite index closed down
40.34 points, or 0.29 percent, at 13,694.94. Eight of the 10
main sectors on the index ended lower.
    Financials, the index's most heavily weighted sector,
dropped 0.9 percent. Royal Bank of Canada gave back 1.1
percent to C$68.93, and Toronto-Dominion Bank slipped
0.9 percent to C$96.32.
    Energy shares were up 0.3 percent, with TransCanada's gains
offsetting broader weakness spurred by lower oil prices.
    TransCanada jumped 1.2 percent to C$48.42, while Enbridge
Inc, another pipeline company, edged up 0.3 percent to
C$46.76. But oil and gas producer Talisman Energy Inc 
fell 0.7 percent to C$11.99.
    In corporate news, Canadian National Railway Co 
reported higher quarterly earnings late on Thursday, but the
results were hit by extreme winter weather in December and came
in slightly below estimates. The stock added 0.5 percent to
    Manitoba Telecom Services Inc fell nearly 4 percent
to C$29.62 after receiving a negative Supreme Court decision
over a pension lawsuit.