January 12, 2010 / 10:20 PM / in 8 years

CANADA STOCKS-Commodities shake TSX after China action

* S&P/TSX composite ends 1.06 percent lower at 11,820.18

* Resource shares hurt by drop in prices after China news

* Fertilizer companies hit by record U.S. corn production

* Telecoms the lone sector to advance (Updates prices, adds details)

By Ka Yan Ng

TORONTO, Jan 12 (Reuters) - Toronto’s main stock index sagged more than 1 percent on Tuesday as resource prices came under pressure on news that China’s central bank was tightening monetary policy at a faster than expected pace.

In its strongest step yet, China rocked global financial markets with a surprise increase in commercial banks’ required reserves, a move that pushed gold to a session low, and knocked down commodity currencies, including the Canadian dollar, against the greenback. [MKTS/GLOB] [ID:nTOE60B095] [FRX/]

“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.”

The Toronto Stock Exchange’s S&P/TSX composite index .GSPTSE ended down 126.95 points, or 1.06 percent, at 11,820.18. All the gains made in the first sessions of the new year, which included a brief rally above 12,000, were within about 20 points of being wiped out at one point during the day. The index ended 2009 at 11,746.11.

Nine of the index’s 10 main groups were lower, led by a 2.88 percent fall in materials and a 1.39 percent tumble in energy.

Energy shares fell as the price of oil headed down towards $80 a barrel from near a 15-month high, while mining shares sagged on a weakening price for bullion. Suncor Energy (SU.TO) was down 1.8 percent at C$37.87. Gold mining companies such as Barrick Gold (ABX.TO), off 2.5 percent at $41.92, also weighed.

“Today’s trading action does stand out a little bit because it’s the first significant down day we’ve had in a little while,” said Elvis Picardo, analyst and strategist at Global Securities in Vancouver.

“But I do think the markets are going to be in this manic-depressive phase for the next couple of weeks at least because the earnings reports are going to drive a lot of the action.”

The decline on Toronto’s main equities index was exacerbated by a disappointing start to the earnings season in the United States as Alcoa Inc’s quarterly results stoked unease about the economic recovery. The bulk of corporate Canada’s results get will start coming out near the end of the month and into February.

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].

Potash Corp of Saskatchewan (POT.TO), down 3.66 percent at C$122.30, was the biggest single drag on the market, while Agrium Inc (AGU.TO) was down 3.3 percent at C$69.15.

The lone index sector that finished higher was telecoms, a group widely regarded by investors as a safe haven in times of turmoil. It finished up 0.38 percent, as BCE (BCE.TO) topped heavyweight advancers with a 1.98 percent gain to C$28.28.

Also helping helping to offset the index’s decline was Sino Forest TRE.TO, which rose 2.3 percent to C$20.96. The company, which operates mainly in China, said it acquired Homix Ltd, a research and development company and a recomposed wood manufacturer, in a $7.1 million deal. [ID:nSGE60B0KA]

$1=$1.04 Canadian Reporting by Ka Yan Ng; editing by Peter Galloway

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