Stock markets fall as European debt concerns discourage investors

Monday, 08 February 2010 08:56

TORONTO - Economic worries pushed the Toronto stock market lower Monday amid worries about debt problems in Europe.

The S&P/TSX composite index lost 28.6 points to 11,194.5 after rising 1.16 per cent last week, most of that coming Friday in the wake of better than expected Canadian and U.S. employment reports for January.

Markets have been pressured by fears about unsustainable government debt in several European countries, particularly Portugal and Greece. Those concerns intensified last week, undermining the euro, after Portugal's lawmakers defeated the government over its deficit reduction plan.

Stock markets have been heading lower since mid-January in the wake of China's plans to limit economic growth. There was also growing uncertainty amid the U.S. government's proposed rules to restrict trading by large financial institutions.

All of those concerns have investors on edge about the pace of a strong global economic recovery. Hopes for a strong rebound helped drive stock markets higher with hardly a break beginning in early March of 2009.

The recent troubles demonstrate a recovery might not be happening as fast as some had hoped.

Despite a lack of commitment to a bailout from the European Union or any concrete rescue plans from policy makers at the G7 meeting of finance ministers this weekend in Iqaluit, experts said countries like Greece or Portugal were unlikely to be stranded or allowed to default.

The Canadian dollar moved up 0.04 to 93.5 cents US.

The gold sector was the biggest percentage decliner 1.65 per cent even as the April gold contract on the Nymex gained $11.80 to US$1,064.60 an ounce. Barrick Gold Corp. (TSX:ABX) faded 65 cents to $37.80 while Goldcorp Inc. (TSX:G) declined 65 cents to $37.54.

Bombardier Inc. (TSX:BBD.B) fell 12 cents to $5.33, helping to send the industrial sector down 0.8 per cent. A German customer has ordered 48 additional Talent 2 trains from the transportation giant for euro200 million or about US$272 million.

And the company also says it is offering to buy back up to US$550 million of its outstanding debt securities for cash, in order to take advantage of current favourable conditions on capital markets.

The financial sector dropped 0.37 per cent, as Manulife Financial Corp. (TSX:MFC) gave back 21 cents to $19.03.

The base metals sector gained almost two per cent as March copper added three cents to US$2.88 a pound. Commodity prices were depressed last week as sovereign debt concerns pushed the U.S. dollar higher. Equinox Minerals (TSX:EQN) gained 11 cents to $3.50 and Teck Resources (TSX:TCK.B) gained $1.70 to $35.90 ahead of earnings coming out after the close.

Oil prices headed higher after three days of declines with the March crude contract on the New York Mercantile Exchange ahead 22 cents to US$71.41. The energy sector moved ahead 0.32 per cent.

The TSX Venture Exchange moved up 7.96 points to 1,463.37.

New York markets were also lower as the Dow Jones industrials were 35.14 points lower to 9,977.09.

The Nasdaq composite index was down 0.97 of a point to 2,140.15 while the S&P 500 index lost 2.15 points to 1,064.05.

In economic news, Canada Mortgage and Housing Corp. reported that the annual rate of housing starts reached 186,300 in January, up from 176,100 in December. The agency added that actual housing starts for 2009 totalled 149,081 units, with activity improving as the year progressed.

Investors also pored over the last earnings reports.

Mining company Xstrata PLC on Monday reported a 41 per cent drop in full-year net profit as last year's economic downturn and the weakness of the dollar affected global commodity sales. Profit fell to US$2.77 billion.

Xstrata is a major player in Canada's mining industry after it acquired the former Falconbridge nickel miner a few years ago.

Hasbro Inc., the second-biggest toymaker in the U.S., said Monday its profit surged 77 per cent to US$165.6 million in the fourth quarter. The owner of the Transformers, Tonka and Playskool brands also said it expects sales and earnings per share to grow this year although it didn't offer specific estimates. Hasbro shares ran up $3.44 to US$34.24.

Elsewhere, the Canpotex marketing partnership has agreed to sell 350,000 tonnes of Canadian potash to China's Sinofert. The fertilizer ingredient was sold at "competitive prices" on the spot market and is to be shipped before the end of March. Canpotex is owned by three companies: PotashCorp. (TSX:POT), Agrium Inc. (TSX:AGU) and Mosaic Corp. (NYSE:MOS). Potash shares gained 71 cents to C$111.76 while Agrium climbed 49 cents to $63.59.

In Asia, Japan's Nikkei 225 closed at a nearly two-month low, falling 1.1 per cent .

Chinese shares also dropped, but trading was listless, with investors keeping to the sidelines ahead of a week-long Lunar New Year holiday, which begins Saturday. The Shanghai Composite Index lost 0.3 per cent while Hong Kong's Hang Seng index fell 0.6 per cent.

London's FTSE 100 index added 0.3 per cent, Frankfurt's DAX gained 0.77 per cent while the Paris CAC 40 index was up 0.8 per cent.