Energy wreaks havoc on TSX

The Toronto stock market was down sharply mid-afternoon Friday led by a selloff in energy stocks as oil prices fell and despite strong earnings reports in the U.S. tech sector.

Soon before the closing bell, the S&P/TSX Composite index had let go of 173.44 points, or 1.5%, to 11,359.93.

The Canadian dollar was down a day after Bank of Canada Governor Mark Carney said the sharply higher currency is putting a brake on the country's economy recovery.

And he made it clear that "intervention is always an option" to control the rise of the loonie, which came within about 2.5 cents of regaining parity with the U.S. dollar a week ago.

The TSX energy sector slipped as the December crude contract on the New York Mercantile Exchange fell. Crude prices had shot up more than three per cent earlier this week to a one-year high on optimism an economic recovery is taking root.

EnCana Corp. lost $1.81 to $63.06.

Mining stocks were little changed as the December copper contract in New York rose 3.6 cents to $3.03 U.S. a pound while December bullion was off.

The tech sector fell, with market heavyweight Research In Motion Ltd. down $1.30 to $69.53.

Shares in electronics manufacturer Celestica Inc. fell 72 cents to $8.93 as the firm generated a small third-quarter loss, reversing a year-earlier profit, as revenues took a hit from the recession and the company booked higher restructuring costs from earlier job cuts.

Other earnings reports included an advance warning from fertilizer company Agrium Inc., which said it expects third-quarter earnings will be 90-95% below what they were a year ago when the full report is issued on Nov. 4.

Agrium attributes the decline to lower prices and margins for all three categories of fertilizer that it produces and its shares fell $4.30 or 7.2% to $55.43.

Shaw Communications Inc. shares fell 72 cents to $19.85 as it said net income was $124 million or 29 cents a share for the three months ended Aug. 31, down 6.3% from $132.3 million or 31 cents a share in the year-ago period. Annual net income was $535.2 million, down 20.3% from $671.6 million in fiscal 2008.

Earlier this week, Canadian National Railway reported a 13% drop in third-quarter profit. Its shares were down $1.15 to $53.

The Canadian dollar dropped 0.48 cents to 94.97 cents U.S.

ON BAYSTREET

All 14 TSX subgroups finished the day downward. The biggest loser was the energy group, off 2.2%, followed by information technology, which lost 2.1% and industrials, off 1.6%.

The TSX Venture Exchange settled back 2.47 points to 1,331.72, while the Nasdaq Canada index dropped 17.86 points to 696.57.

ON WALLSTREET

In New York, Stocks slumped Friday afternoon, in a broad-based selloff that was especially hard on the leaders of the most recent leg of the rally - banks, energy shares and transportation companies.

The Dow Jones Industrials jettisoned 115.93 points, or 1.25%, to 9,965.38. The S&P 500 index backpedaled 14.50 points to 1,078.41. The Nasdaq composite index stumbled 11.38 points to 2,153.91.

Stocks had risen in the morning after upbeat results from Microsoft and Amazon.com and an encouraging reading on existing home sales. But the tone turned negative in the afternoon, as investors cashed out of some of the biggest leaders of the recent rally.

Since bottoming at a 12-year low on March 9, the S&P 500 has surged over 62% through its rally high earlier this week.

Although repeated calls for a big 10% to 15% selloff haven't materialized, smaller selloffs of 1% to 3% have popped up periodically during the last seven months. Friday appeared to be an extension of that trend.

For individual sectors, the declines were bigger.

The Dow Jones Transportation average, which includes railroads, truckers and airlines, had surged 88% through its rally high earlier this week. On Friday, it lost more than 3.5%.

Some market pros have said the rise in the transports is a good indicator of the economic recovery. But downbeat comments Friday from railroads Union Pacific and Burlington Northern put that optimism into question. It also gave investors an opportunity to cash out after the massive rise in the sector.

The KBW Bank index, which tracks 20 financial firms, including Bank of America, Citigroup and Wells Fargo has rallied over 140% between March and its peak this week. The bank sector slumped as well, losing 1.9%.

A strong U.S. dollar - bouncing back from one-year lows against a slew of other currencies - added to the downturn Friday. A strong dollar pressures dollar-traded commodities including oil, which in turn drags on energy shares. Big multinationals that benefit from a weak dollar also slipped.

Stocks rallied Thursday following upbeat earnings from 3M, AT&T and other blue chips. The advance propelled the Dow back above 10,000 and the S&P 500 closer to 1,100. But that advance proved unsustainable Friday, even though corporate news was upbeat.

Microsoft reported weaker quarterly sales and income Friday morning that easily surpassed analysts' estimates. Cost cutting and strong sales of its Windows operating system fueled the advance.

On Thursday, Microsoft rolled out its new Windows 7 operating system, expected to boost PC sales in the coming months.

Shares of Microsoft, a Dow component, rose over 9% Friday morning, touching a one-year high, before giving up nearly half of that advance.

Late Thursday, Dow component American Express reported weaker quarterly sales and earnings that beat analysts' forecasts. Shares fell 4% Friday.

Also late Thursday, Amazon.com reported a big surge in earnings and revenue, thanks in part to strong sales of its e-reader, Kindle. Shares jumped 25% Friday, hitting a 10-year high.

So far, 199 companies, or 40% of the S&P 500, have reported results. Profits are currently on track to have fallen 18.2% versus a year earlier, according to the latest from Thomson Reuters.

Revenue is expected to have dropped over 10% from a year ago.

Federal Reserve chairman Ben Bernanke speaking Friday, said that the financial turmoil is abating, but that lawmakers have to reform the system to help prevent a crisis of this magnitude happening again.

On Thursday, the Federal Reserve proposed a broad overhaul of pay policies at 28 of the largest U.S. banks. Also Thursday, White House "pay czar" Kenneth Feinberg called for the seven biggest recipients of federal bailout money to cut in half what they pay their top executives.

On the economic front, existing home sales jumped to a 5.57-million unit annual rate in September, according to a National Association of Realtors report released Friday morning. Sales were expected to have risen to a 5.35-million unit annual rate from 5.1-million unit annual rate in August.

Treasury prices fell, raising the yields for the benchmark 10-year note to 3.49% from Thursday's 3.42%. Prices and yields move in opposite directions.

The price of a barrel of oil lost 69 cents to $80.02 U.S.

Gold prices slid two dollars to $1,056 U.S. an ounce.