January 17, 2008 / 6:35 PM / 11 years ago

UPDATE 2-Toronto stocks fall for 3rd day on economic fears

(Updates figures, adds details, comments)

By Leah Schnurr

TORONTO, Jan 17 (Reuters) - The Toronto Stock Exchange’s main index gave up early gains to drop on Thursday afternoon, for a third straight day of heavy losses, amid intensifying worries over the prospect of a recession in the United States.

Shortly after the open, the index had rallied 100 points, only to retrace its steps further into five-month lows after oil and gold prices retreated and comments by Federal Reserve Chairman Ben Bernanke failed to reassure investors.

Resource issues led the retreat, with the materials sector down 2.9 percent and the heavyweight energy group shedding 1.8 percent. Net decline leader Potash Corp of Saskatchewan POT.TO slumped C$14.66, or 10.6 percent, to C$123.04, and Canadian Natural Resources (CNQ.TO) stumbled C$2.21, or 3.2 percent, to C$66.17.

Bernanke told the U.S. House of Representatives Budget Committee earlier on Thursday that he supported efforts to craft an economic stimulus package and repeated that the Fed would act aggressively to counter recession risks.

“The Fed’s behind the eight-ball here and that’s a big concern for the market in the fact that he waffles around on trying to make a clear point of view on easing,” said Lex Kerkovius, senior research analyst at McLean & Partners Wealth Management Ltd., in Calgary.

“We need a lot more decisive action from the Fed before this market takes a more positive view.”

The benchmark S&P/TSX composite index .GSPTSE was down 172.98 points, or 1.32 percent, at 12,901.88, with all but one of its 10 main groups lower.

The financial sector dropped 0.7 percent. Canadian Imperial Bank of Commerce (CM.TO) was down 99 Canadian cents, or 1.4 percent, at C$68.25, and Bank of Nova Scotia (BNS.TO) slid 51 Canadian cents, or 1.1 percent, to C$46.54.

The only sector to buck the broader declines was healthcare, which climbed 0.1 percent. Cardiome Pharma Corp COM.TO rose 9 Canadian cents, or 1.1 percent, to C$8.00.

The key index’s decline added to a loss of more than 600 points over the last two days, amid further writedowns in the banking sectors of both the U.S. and Canada, and worries that demand for resources could be staunched by a possible economic slowdown.

The index has fallen about 12 percent from its closing high reached in July, putting it into the zone of a technical correction.

“We’re long past the correction phase,” said Kerkovius.

“Every day we get another data point (and) the market is more sensitive to negative news than positive news at this point,” he said.

In the latest round of troubling data, U.S. regional factory activity showed a sharp contraction, which offset earlier optimism following a drop in weekly jobless claims.

That, and a larger-than-expected fourth quarter net loss from U.S. brokerage firm Merrill Lynch, hurt stocks in the U.S. as well.

The Dow Jones industrial average .DJI was down 133.32 points, or 1.07 percent, at 12,332.84, while the Nasdaq Composite Index .IXIC fell 17.37 points, or 0.73 percent, to 2,377.22.

$1=$1.03 Canadian Editing by Bernadette Baum

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