January 23, 2008 / 2:14 PM / 11 years ago

Volatile Toronto stock index set to drop

TORONTO, Jan 23 (Reuters) - The Toronto Stock Exchange’s main index, fresh off a sharp reversal of fortune, is set to drop on Wednesday as investors factor in the increased likelihood of an economic slowdown, and commodities tumbled.

Canadian National Railway (CNR.TO) will be eyed after it helped to kick off the fourth-quarter earnings period by suggesting it does not see a U.S. recession on the horizon.

However, fears of a recession will be center stage once again after European equity markets dipped and data showed Canada’s composite leading indicator slipped by 0.1 percent. For details, see: [nN23613317]

Canada’s benchmark stock index plunged more than 600 points on Monday as investors fretted over the fallout from a U.S. slowdown.

On Tuesday, emboldened by interest rate cuts in Canada and the United States, it rebounded more than 500 points in one of its sharpest about-faces.

But the U.S. Federal Reserve’s cut of 75 basis points — the largest in 23 years — failed to lift stock markets in the United States on Tuesday, an ominous sign for the closely-linked Canadian market.

“That (U.S. markets) couldn’t even go up after that big rate cut sets off warning lights,” said Steve Ibel, institutional equities trader at Beacon Securities in Halifax, Nova Scotia.

“People might be thinking the emergency Fed cut looks a little desperate ... so people will probably start selling the strength in Toronto.”

CN Rail will be on radars after it reported a higher profit. For details, see: [nN22549127]

According to early notes from analysts, the railway met or beat expectations. “CNR is doing a good job of holding its position against some formidable economic forces,” wrote Randy Cousins of BMO Capital Markets.

Results from Methanex Corp (MX.TO) are expected later in the day.

In Canada’s oil patch, Petrowest Energy Services Trust PRW_u.TO said late on Tuesday it will suspend cash distributions because of a downturn in the oil field service industry. For details, see: [nN22304941]

Falling crude oil, natural gas, gold and base metals prices on Wednesday should also take a bite out of the resource-heavy TSX index.

In the gold subsector, Yamana Gold (YRI.TO) said it expects production at its El Penon mine in Chile to ramp up in two years. For details, see: [nN23375744]

The S&P/TSX composite index .GSPTSE starts the day at 12,640.89 after jumping 508.76 points, or 4.2 percent, in the previous session.

$1=$1.03 Canadian Reporting by Jonathan Spicer; Editing by Scott Anderson

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