March 19, 2010 / 4:17 PM / in 8 years

CANADA STOCKS-TSX dives below 12,000 as rate fears bite

* TSX down 89.19 points at 11,950.82

* Oil and gas and materials sectors lead index lower (Updates prices, adds details, quotes)

By Claire Sibonney

TORONTO, March 19 (Reuters) - Toronto’s main stock index dived below the 12,000 mark on Friday morning as soft commodity prices hit petroleum and metals producers, and unexpectedly strong inflation data increased fears of higher interest rates.

Canadian Natural Resources CNQ.TO, the country’s biggest independent oil explorer, slid 0.96 percent to C$73.02, and natural gas major EnCana Corp ECA.TO dropped 2.3 percent to C$31.38.

Barrick Gold Corp ABX.TO, the world’s largest gold producer, was down 1.76 percent at C$39.61, and base-metals miner Teck Resources TCKb.TO fell 2.28 percent to C$40.32.

Commodity prices fell as renewed worries about Greece’s debt problems pushed the U.S. dollar higher against the euro on safe-haven buying. Most commodities are priced in U.S. dollars. [O/R] [GOL/]

Meanwhile, stronger than expected Canadian inflation data increased expectations that the Bank of Canada will hike interest rates sooner rather than later this year. [ID:nN19500487]

“I think that markets are now realizing what the fixed income have realized for a while, and that is that in Canada interest rates are going to rise,” said Carlos Leitao, chief economist at Laurentian Bank Securities, in Montreal.

Higher rates are typically negative for stocks because they slow economic growth and increase borrowing costs for companies.

At 11:43 a.m. (1543 GMT), the Toronto Stock Exchange’s S&P/TSX composite index .GSPTSE was down 89.19 points, or 0.74 percent, at 11,950.82.

On Wednesday, the index touched a 17-month high of 12,122.47.

“I think the market has gotten itself into a situation where the valuations short-term have become quite stretched,” said Rick Hutcheon, president and CEO at RKH Investments.

“I think the market needs to catch its breath a little bit and I wouldn’t be surprised if we see some erosion in the next week or two,” Hutcheon said.

The index’s technology sector fell 1.2 percent, with concern over U.S. corporate results spilling over into Canada after Palm Inc PALM.O tumbled one day after it warned that quarterly revenues would be far below expectations. [ID:nN19134642]

BlackBerry maker Research In Motion RIM.TO fell 0.48 percent at C$75.14.

$1=$1.01 Canadian Additional reporting by Jennifer Kwan; editing by Peter Galloway

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