August 19, 2008 / 9:24 PM / 10 years ago

UPDATE 4-Toronto stocks falter as banks eclipse resources

(Adds details, quotes)

* TSX ends lower in broad decline, amid economic fears

* Financials hurt by more worries over credit crunch

* Resources gain along with commodity prices

By Leah Schnurr

TORONTO, Aug 19 (Reuters) - The Toronto Stock Exchange’s main index sagged on Tuesday, pressured by festering worries over the credit crisis and the U.S. economic outlook, which offset a rally in commodities.

The financial sector led the way down, dragged under along with U.S. bank stocks after a forecast that U.S. investment bank Lehman Brothers LEH.N will take a further $4 billion in writedowns in the third quarter. See: [ID:nBNG259145].

The forecast from JPMorgan Securities deepened worries over more fallout to come from the credit crunch, taking Bay Street’s bank sector down 3.2 percent. Among the decliners, Canadian Imperial Bank of Commerce (CM.TO) slid 3 percent.

Sour economic data also injected a negative tone after data showed U.S. wholesale prices shot up in July, while home builders cut back on construction. The data underscored worries of rising inflation and a troubled U.S. housing market that continues to deteriorate.

The S&P/TSX composite index .GSPTSE closed down 55.52 points, or 0.42 percent, at 13,063.85.

Fears over the stability of U.S. mortgage giants Fannie Mae FNM.N and Freddie Mac FRE.N also rattled financial shares, said Keith Summers, chief investment officer at Stonegate Private Counsel.

“Today, with the disappointing (producer price index) numbers and the home sales numbers, plus lingering concern over Fannie and Freddie, it was a day for financial bears to have the upper hand, so that pushed the commodity prices up,” Summers said.

“Outside of the commodities and materials sectors, the rest (of the market) is very dependent on the performance of the U.S. economy,” he added.

CIBC fell 3 percent to C$58.45, while Toronto-Dominion Bank (TD.TO) lost 4.7 percent to C$59.00.

But a rebound in gold, oil and other commodities, while the U.S. dollar weakened, cushioned the losses as advancing resource shares helped bring the Toronto benchmark back from a triple-digit loss.

The materials and energy sectors were the only two groups to make gains, rising 1.8 percent and 2.1 percent, respectively.

Canadian Natural Resources (CNQ.TO) was up 3.3 percent at C$82.27, while Agnico-Eagle Mines (AEM.TO) climbed 4.5 percent to C$57.42.

Francis Campeau, a broker at MF Global Canada, in Montreal, said the session was a classic example of sector rotation out of financials and into resources, noting that Toronto’s heavy weighting in commodities “saved the day”.

Elsewhere, BFI Canada Income Fund BFC_u.TO shed 17.1 percent to C$18.38 after the waste management company said it planned to convert from a trust to a dividend-paying company and will reduce monthly payouts to investors by 73 percent. See: [ID:nN19358727].

Market volume was 370 million shares worth C$6.1 billion. Decliners outpaced advancers 880 to 644. The blue chip S&P/TSX 60 index .TSE60 closed down 3.07 points, or 0.39 percent, at 779.83.

In New York, bank shares and worries over the threat of inflation took stocks lower. See: [ID:nN19315843].

The Dow Jones industrial average .DJI closed down 130.84 points, or 1.14 percent, at 11,348.55, and the Nasdaq composite index .IXIC slipped 32.62 points, or 1.35 percent, to 2,384.36. ($1=$1.06 Canadian) (Editing by Rob Wilson)

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