C$ down as Bank of Canada holds line on rates; TSX up, N.Y. down on housing data

By Malcolm Morrison, The Canadian Press

TORONTO - The Canadian dollar fell almost two cents US late Tuesday morning after the Bank of Canada took aim at currency traders who hoped it might soon raise interest rates, warning they will instead stay at rock bottom as the central bank strives to keep a lid on the red hot loonie.

The currency was down 1.87 cents to 95.28 cents as the central bank announced it was leaving interest rates at 0.25 per cent - and will likely keep them that low until the middle of next year as it had earlier indicated.

The central bank also cautioned that heightened volatility and the sharp rise in the Canadian dollar "are working to slow growth."

It added that the country's gross domestic product is still expected to grow by three per cent next year, but only 3.3 per cent in 2011, two-tenths of a point less than the Bank of Canada had forecast in July.

"We expected the Bank of Canada to make some comment about the Canadian dollar," said David Watt, senior currency strategist at RBC Capital Markets, a week after the dollar closed within about 2.5 cents of parity with the U.S. dollar.

"But the comments that have been made are very stark and very clear - there's no misunderstanding what the bank sees in regard to the Canadian dollar as it approached parity - it's a significant risk to the outlook for the Canadian economy."

The Canadian dollar has seen particularly sharp runups of late because of a weakening U.S. dollar and higher commodity prices, particularly oil.

Meanwhile, the Toronto stock market was ahead slightly in late morning trading, thanks largely to gains in the telecom and mining sectors.

The S&P/TSX composite index gained 26.2 points to 11,564.6.

The TSX telecom sector was up one per cent with Rogers Communications (TSX: RCI-B.TO) ahead 56 cents to $28.13.

The base metals sector was up 0.54 per cent as the December copper contract on the New York Mercantile Exchange was down three cents at US$2.94 a pound after good economic news from China helped push copper up 12 cents on Monday. Teck Resources (TSX: TCK-B.TO) advanced 49 cents to C$34.15.

The energy group was down slightly as the November crude contract on the Nymex eased 99 cents to US$78.62 a barrel. Suncor Inc. (TSX: SU.TO) gave back 35 cents C$39.81.

The TSX Venture Exchange moved down 1.27 points to 1,340.04.

In other economic data, Statistics Canada's composite leading index - a snapshot of future economic activity - rose by 1.1 per cent in September, its fourth straight gain. And the August reading was revised up from 1.1 per cent to 1.2 per cent. In September, seven of the 10 components advanced, led again by the stock market and the housing index.

And wholesale sales in current dollars fell 1.4 per cent in August to $41 billion.

Statistics Canada blames weaker sales in automotive products, machinery and electronic equipment, and building materials for the decline.

New York markets were weak as investors balanced mixed news from the housing sector.

The Dow Jones industrial average declined 29.4 points to 10,062.8.

The Nasdaq composite index pulled back 5.65 points to 2,170.67 and the S&P futures was down 3.4 points to 1,094.5 despite well-received earnings reports from Apple Inc. and Texas Instruments.

And outside the tech sector, Caterpillar also surprised even as it said its profit plunged in the latest quarter as construction companies bought fewer of its big yellow-and-black machines.

But the company said it sees rebounding demand worldwide and it lifted its profit outlook for the year and its shares ran ahead $2.17 to US$60.02.

Shares in Vancouver-based Finning International (TSX: FTT.TO), which is the world's largest Caterpillar equipment dealer, moved up 49 cents to C$17.40.

The U.S. Labour Department said lower energy prices pushed U.S. wholesale prices lower in September.

And while the Commerce Department said while home building edged up in September, applications for building permits fell by the largest amount in five months.

The TSX tech sector rose slightly with share in Aastra Technologies Ltd. (TSX: AAH.TO) surging $4.19 to $28 after it said Monday it will begin issuing a quarterly dividend due to a jump in its third-quarter profit. The communications equipment maker said shareholders will receive a 15-cent dividend after its profits nearly tripled to $9.6 million.

The gold sector fell 0.55 per cent even as December bullion gained $1.30 to US$1,059.40 an ounce.

In other corporate news, a Spanish union is planning to strike at an Opel auto plant to protest job cuts planned by Canadian auto parts giant Magna International (TSX: MG-A.TO). Magna has said it wants to lay off 1,350 of the 7,500 workers at Zaragoza and shift part of the factory's production to Germany as part of its takeover of Opel from General Motors Co. Magna shares were ahead 57 cents to $47.62.

Swiss drug company Lonza Group has withdrawn a US$485-million takeover offer for Canadian pharmaceutical products company Patheon Inc. (TSX: PTI.TO), after the deal was blocked by investment firm JLL Partners. The New York company is Patheon's largest investor. Patheon shares fell 16 cents to $2.68.

Overseas, Japan's Nikkei 225 index gained one per cent and Hong Kong's index rose 0.8 per cent.

London's FTSE 100 was off 0.4 per cent, Frankfurt's DAX dipped 0.45 per cent, while the Paris CAC 40 was off 0.41 per cent.