January 12, 2010 / 5:34 PM / in 8 years

CANADA STOCKS-TSX sags as commodities hit by China moves

* S&P/TSX composite down 0.66 percent at 11,867.90.

* Producers hurt by commodity price drop after China news

* Fertilizer companies hit by record U.S. corn production (Updates prices, adds details, quotes)

By Claire Sibonney

TORONTO, Jan 12 (Reuters) - Toronto’s main stock index was lower at midday on Tuesday as commodity 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 hit gold and platinum prices and knocked the euro lower versus the dollar. [MKTS/GLOB]

“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 11:42 a.m. (1642 GMT) the Toronto Stock Exchange’s S&P/TSX composite index .GSPTSE was down 79.23 points, or 0.66 percent, at 11,867.90.

Energy and mining shares slumped. Talisman Energy Inc TLM.TO dropped 4.3 percent to C$19, and Suncor Energy Inc (SU.TO) was down 1.17 percent at C$38.13.

Oil fell below $82 a barrel on Tuesday from a 15-month high as forecasts for milder weather in the U.S. Northeast signaled lower demand in the world’s largest heating oil market. [O/R]

Gold mining companies such as Barrick Gold Corp (ABX.TO), off 1.3 percent at $42.44, also dragged down the index.

“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]. Shares of Potash Corp of Saskatchewan (POT.TO), down 3.6 percent at C$122.31, were the biggest single drag on the market, while Agrium Inc (AGU.TO) was down 1.9 percent at C$70.22

Stocks helping to offset the index’s decline included Sino-Forest Corp TRE.TO, which rose 4.1 percent to C$21.33.

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]

Other stocks on the move included Allon Therapeutics NPC.TO, which jumped about 15 percent. The tiny Canadian drugmaker said on Tuesday that U.S. regulators have granted its brain disease treatment orphan drug status, which protects it from competition temporarily. [ID:nN12191222]

$1=$1.04 Canadian Reporting by Claire Sibonney; editing by Peter Galloway

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