December 9, 2008 / 5:20 PM / in 9 years

CANADA STOCKS-TSX falls on financials, but resources up

* Financials slide after RBC announces share issue

* Central bank cuts overnight rate 75 bps

* Oils, materials rise on optimism over U.S. stimulus (Adds quotes, details)

By Jennifer Kwan

TORONTO, Dec 9 (Reuters) - Toronto’s main stock index sank late on Tuesday morning in choppy action as strength in resource issues and a big rate cut by the Bank of Canada were offset by weakness in financials.

Royal Bank of Canada (RY.TO), one of the most heavily traded stocks, fell 5.7 percent to C$35.37 after it said after the market close on Monday that it plans to issue up to C$2.3 billion in common shares to beef up its capital ratio. [ID:nN08525759] The broader financial sector lost 3.8 percent.

“Every second week there’s a new bank or new company that raises capital through a share offering because they can’t through bonds or because they feel it’s cheaper for them to offer shares,” said Francis Campeau, a broker at MF Global Canada, in Montreal.

“This is not a positive in the long run, especially for equities as there is more and more equity supply.”

Shortly after 11:45 a.m. (1645 GMT), the S&P/TSX composite index .GSPTSE was down 74.75 points, or 0.87 percent, at 8,492.37, with seven of the index’s main groups lower.

Offsetting that weakness was strength in the energy and materials groups, which rose 1 percent and 2.1 percent respectively as optimism over economic stimulus plans outweighed the influence of flat to lower oil and gold prices.

“The market certainly responded to the (President-elect Barack) Obama comments on the weekend on his building program, and that obviously had a spillover effect into Canada,” said Bruce Latimer, trader at Dundee Securities.

As well, many resource stocks have been “beaten up in the last six months” and there is a lot of value investing going on, he added.

Leading the way higher were Potash Corp of Saskatchewan (POT.TO), up 3.3 percent at C$79.49, while oil company EnCana Corp (ECA.TO) rose 1.4 percent to C$56.40. Miner Barrick Gold (ABX.TO) was up 1.9 percent at C$35.01.

Also overshadowed by weakness in the financials sector was the Bank of Canada’s decision to cut its key interest rate on Tuesday by a steeper than expected three-quarters of a percentage point to a 50-year low of 1.50 percent, citing significant deterioration in the outlook for the world economy. [ID:nN092350]

The last time Canada’s central bank cut its key overnight rate this sharply was in October 2001, following the Sept. 11 attacks in the United States. For the first time, the central bank declared the domestic economy to be in recession.

Two of Canada’s big banks lowered their prime rates to 3.5 percent shortly after the central bank’s decision. [ID:nN09191307]

Elsewhere, shares of BCE Inc (BCE.TO) sank 7.4 percent to C$22.82. The telecom giant, whose C$34.8 billion buyout appears close to collapse, has received a second accounting opinion that found it would be solvent after the deal is done, a source familiar with the situation said on Monday. [ID:nN08533318] ($1=$1.26 Canadian) (Reporting by Jennifer Kwan)

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