January 30, 2008 / 9:57 PM / 11 years ago

UPDATE 4-Toronto stocks fall as financial worries return

(Updates with official closing numbers. Adds details, quotes)

TORONTO, Jan 30 (Reuters) - The Toronto Stock Exchange’s main index ended lower on Wednesday in a volatile session as worries over more trouble in the financial sector undercut a brief rally after another U.S. interest rate cut.

The index had bounced higher immediately after the U.S. Federal Reserve announced a highly anticipated 50-basis-point cut and left the door open to more.

But the Toronto benchmark’s rally soon evaporated with stocks falling broadly, led down by the banking sector after a report that bond insurers could be downgraded.

Bond insurers were used by some companies to hedge investments in now-faltering subprime mortgage securities, but markets have become nervous that these insurers now could also fail.

“Probably the most important thing is we still haven’t got this monoline insurance companies (problem) solved ... that’s the key problem right now I think the market is looking at,” said Sal Masionis, stockbroker at Brant Securities.

The S&P/TSX composite index .GSPTSE closed down 48.23 points, or 0.37 percent, at 12,998.20 with seven of its 10 main groups in negative territory.

Financials were down 0.9 percent, stung by Swiss investment bank UBS AG’s UBSN.VX announcement of $4 billion in new writedowns. The bank signaled half of that was connected to bond insurers.

In Toronto, Canadian Imperial Bank of Commerce (CM.TO) tumbled C$1.85, or 2.6 percent, to C$68.70, and National Bank of Canada (NA.TO) was down 79 Canadian cents, or 1.6 percent, at C$49.28.

Potash Corp of Saskatchewan POT.TO was the biggest drag on the index, falling C$5.32, or 3.8 percent, to C$135.44, while the materials sector - home to resource shares - was down 0.2 percent.

Consumer discretionary and staples shares were down, with the sectors off 1.3 percent and 1 percent respectively.

Worries over the health of the economy in the United States, Canada’s biggest trading partner, also dogged the index even amid the Fed’s aggressive attempt to stave off a recession.

Masionis said that the hefty interest rate cut, following last week’s surprise cut of 75 basis points, means the Fed is “very concerned about the financial liquidity of the market.”

On the upside, Suncor Energy (SU.TO) gained C$2.40, or 2.6 percent, to C$93.50 after it said it will spend C$20.6 billion in an expansion that will make it the biggest producer in Alberta’s oil sands. ($1=$0.99 Canadian) (Reporting by Leah Schnurr; Editing by Peter Galloway)

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