(Refiles to add dropped word ‘percent’ in second paragraph)
* TSX higher, but falls back from early 4.6 pct rally
* Financials drop 2.9 pct after bank warnings
* Energy, materials up after TSX’s 9 pct drop on Thursday (Adds quote, details)
By Jennifer Kwan
TORONTO, Nov 21 (Reuters) - The Toronto Stock Exchange’s main index bounced back into positive territory late Friday morning as financial and resource issues played tug-of-war in a highly volatile market.
The TSX opened strongly with an early gain of more than 4.6 percent, then tumbled into negative territory as weak financial issues dragged the market lower after its opening surge.
The composite then rallied back on strength the energy and materials sectors, up 2.6 percent and 12.1 percent, respectively.
“After what happened yesterday we saw a bit of a rebound happening overseas prior to the North American markets opening,” said Michael Sprung, president at Sprung & Co. Investment Counsel of earlier market activity.
“It’s sort of typical of what we’ve been seeing over the last couple of months that after particularly devastating downward movements in the market, we’ve seen to some extent a rebound the next day.”
“The big question is how long is the euphoria likely to last,” he added.
At 11:45 a.m. (1610 GMT), the S&P/TSX composite index .GSPTSE was up 98.15 points, or 1.27 percent, at 7,822.91, with three of its 10 main groups higher. Earlier, it raced 4.6 percent higher but quickly gave back those gains.
The index sank to its lowest level in five years on Thursday following two bank profit warnings and as the price of crude slid below $50 a barrel. It was the biggest percentage drop for the index since October 1987.
The financial sector was down 2.9 percent just before midday, paring earlier heavy losses .
Toronto-Dominion Bank (TD.TO) sank 5.6 percent to C$41.12. Earlier, RBC cut TD Bank to “underperform” from “sector perform” and reduced its price target to C$49 from C$53. [ID:nWNAB6266] following TD’s earnings warning.
TD Bank said on Thursday that the “dramatic” lack of liquidity in global credit markets will prompt charges of C$350 million for credit-trading losses. [ID:nN20398511] That followed a warning from Bank of Nova Scotia (BNS.TO).
In economic news, Canadian consumer prices registered their sharpest decline in nearly 50 years in October, dropping 1 percent from September as gasoline prices fell, Statistics Canada said. [ID:nN21500487]
The reading could affect equity markets as concerns over deflation grow, said Patricia Croft, chief economist at Phillips, Hager & North.
“Inflation fears are melting away, which is a good thing because it opens the door for rate cuts in Canada and elsewhere. But the fear is that we’re going to overdo this and the rate of inflation is going to get very low, close to zero and even tip over into deflation,” Croft said.
“Deflation, of course, is a very toxic environment where prices decline, consumers delay purchases and that is not great for the economy.” ($1=$1.29 Canadian) (Reporting by Jennifer Kwan; editing by Rob Wilson)