* S&P/TSX composite falls 1.31 percent to 11,790.89
* Producers hurt by commodity price drop after China news
* Fertilizer companies hit by record U.S. corn production (Updates prices, adds details)
By Claire Sibonney
TORONTO, Jan 12 (Reuters) - Toronto’s main stock index sagged more than 1 percent at midday on Tuesday as resource prices dropped after China took its strongest step yet towards tightening monetary policy.
China rocked global financial markets with a surprise increase in banks’ required reserves, a move that pushed gold to a session low, and knocked the euro lower versus the dollar. [MKTS/GLOB] [ID:nTOE60B095]
“China’s decision to change some of the banking structure with bigger deposits certainly had an effect in terms in trying to cool some of the demand,” said Brian Pow, vice president, research, and equity analyst at Acumen Capital Partners in Calgary.
“We’re a natural resources country so I think you’re going to see people trying to figure out whether that will cool off some of the demand for the mining side.”
At 1:10 p.m.(1810 GMT) the Toronto Stock Exchange’s S&P/TSX composite index .GSPTSE was down 156.24 points, or 1.31 percent, at 11,790.89, as gains made in the first sessions of the new year were quickly evaporating. The index ended 2009 at 11,746.11.
Energy shares slumped as the price of oil slipped below $82 a barrel. Talisman Energy Inc TLM.TO dropped 4.03 percent to C$19.05, and Suncor Energy Inc (SU.TO) was down 2.6 percent at C$37.57. Gold mining companies such as Barrick Gold (ABX.TO), off 2.2 percent at $42.04, also weighed.
“Perhaps the tightening will slow the Chinese economy and that would have an effect on commodities... so that’s affected our materials group,” said John Kinsey, portfolio manager at Caldwell Securities.
Canadian fertilizer makers were hit hard after the United States raised its estimate for 2009 corn production to a record high, sending grain futures crashing. [ID:nN12192901].
Stocks helping to offset the index’s decline included Sino-Forest Corp TRE.TO, which rose 2.3 percent to C$20.96.
The company, which operates mainly in China, said it acquired Homix Limited, a Chinese research and development and recomposed wood manufacturer, in a $7.1 million deal. [ID:nWNAB3193]
$1=$1.04 Canadian Additional reporting by Ka Yan Ng; editing by Peter Galloway