TSX gives back chunk of previous gains, C$ tumbles as economy shrinks in Aug.

By Malcolm Morrison, The Canadian Press

TORONTO - Commodity and financial stocks led the way to a sharply lower session on the Toronto stock market Friday morning amid news of an unexpected downturn in the Canadian economy during the middle of the third quarter.

The S&P/TSX composite index was down 120.3 points to 10,955.9 as Statistics Canada reported gross domestic product shrank 0.1 per cent during August following a flat showing in July. Economists had expected a 0.1 per cent rise.

The loonie was down 1.11 cents to 92.61 cents US following the report.

The TSX surged 270 points Thursday in the wake of news that the American economy grew at an annualized 3.5 per cent pace in the third quarter. It was the first quarterly growth since early 2008 but there is concern that much of that growth was fuelled by government stimulus programs.

However, prior to that gain the Toronto market had lost about six per cent in the previous four sessions over concerns about the strength of an economic rebound.

And the TSX is headed for its first monthly loss since February as the rally that sent the TSX up well over 50 per cent since the lows of early March starts to run out of steam.

"It would be fair to anticipate some kind of a pullback," said Steve Uzielli, director portfolio advisory group, portfolio manager at ScotiaMcLeod, noting investors have not been reacting as positively to good news as they had been previously.

"As the market has moved higher and started to price in a fair bit of economic recovery, I think the market got to a position where it was pretty fairly valued. So to push it higher to the next level, investors need to see the next stage of growth and that... is going to come from revenue growth, as opposed to just cost cutting."

Lower commodity prices weighed on the Toronto market following strong gains in oil and metal prices Thursday.

The December crude contract on the New York Mercantile Exchange lost $1.47 to US$78.40 after jumping almost US$2.50 Thursday. The energy sector was down 1.32 per cent. Canadian Natural Resources (TSX: CNQ.TO) lost $1.64 to $70.82 and EnCana Corp. (TSX: ECA.TO) dropped 87 cents to $60.96.

The gold sector lost two per cent as the December bullion contract on the Nymex lost $6.50 to US$1,040.60 an ounce. Barrick Gold Corp. (TSX: ABX.TO) fell 97 cents to $38.69.

The December copper contract shed five cents to US$2.98 a pound amid a drop of 1.7 per cent in the base metals sector. Teck Resources (TSX: TCK-B.TO) declined 53 cents to $31.98.

Financials were also a weight, down 1.32 per cent as TD Bank (TSX: TD.TO) moved $1.33 lower to $62.26.

The telecom sector was the major advancer with shares in Canada's three big telecoms - Rogers, (TSX: RCI-B.TO), Bell (TSX: BCE.TO) and Telus (TSX: T.TO) - all ahead after the CRTC ruled Thursday that Toronto-based Globalive isn't Canadian enough to compete as a new national cellphone company. The broadcast regulator said Globalive doesn't meet the Canadian ownership and control requirements to operate as a telecommunications carrier. Rogers shares gained $1.32 or about four per cent to $32.30.

"Of all the telecoms, Rogers got beaten up the most over concerns around competition and so they were benefiting the most today," observed Uzielli.

Telus shares were up 40 cents to $33.25 and BCE advanced 29 cents to $25.89.

The TSX Venture Exchange was 8.98 points lower to 1,301.44.

New York indexes also backed off following Thursday's strong gains.

The Dow Jones industrial average lost 89.8 points to 9,872.8 after running up 200 points.

The Nasdaq composite index dipped 12.59 points to 2,084.96 while the S&P 500 index dropped 9.45 points to 1,056.65.

In U.S. economic news Friday morning, the Commerce Department said U.S. consumer spending dropped 0.5 per cent in September, which matched economists' expectations. Personal incomes were unchanged as workers contend with rising unemployment and a squeeze on wages.

There was good news from a reading of the midwestern U.S. manufacturing sector.

The Chicago Purchasing Managers Index jumped to 54.2, showing expansion for only the second time since September, 2008. That was far better than the 48.5 reading that had been expected.

Canadian investors have plenty of fresh earnings reports to consider.

Imperial Oil Ltd. (TSX: IMO.TO) reported after Thursday's market close that quarterly profits fell 61 per cent from a year ago, when oil and natural gas prices were much higher. The energy producer and oil refiner earned $547 million or 64 cents a share, above analyst estimates of 58 cents.

Its shares were up 34 cents to $40.57.

IGM Financial Inc. (TSX: IGM.TO) reported third-quarter profit dropped to $167.4 million from $198.7 million a year ago as revenues slipped. IGM Financial, a member of the Power Financial group of companies, operates under the Investors Group, Mackenzie Financial and Investment Planning Counsel banners. Its shares were off 64 cents to $38.55.

Eldorado Gold Corp. (TSX: ELD.TO) reported a third-quarter profit of US$30.2 million, up from a year ago, as the company increased gold sales. The Vancouver-based gold miner earned US$30.2 million for the quarter compared with a profit of $17 million a year ago. Revenue totalled $82.6 million, up from $68.2 million and its shares faded 25 cents to $11.95.

Tim Hortons Inc. (TSX: THI.TO) shares declined 46 cents to $31.33 as it said Friday its revenue increased to $563.6 million in the third quarter, up 10.7 per cent from just under $509 million in the comparable quarter of 2008. Despite the sales growth, net income fell to $61.2 million or 34 cents per share in the quarter, down 22.3 per cent from a year ago. Tim Hortons said the lower profit was due to $23.1 million in costs associated with reorganizing the company into a Canadian legal entity.

In other corporate news, Husky Energy Inc. (TSX: HSE.TO) says it has completed and tested two promising exploratory wells to evaluate the shale gas potential in the Montney and Doig formations in northeastern British Columbia. Huskey said late Thursday the drilling results were "very encouraging." Its shares were 16 cents higher to $28.62.

Overseas, Hong Kong's Hang Seng jumped 2.3 per cent while Japan's Nikkei 225 stock average gained 1.5 per cent.

London's FTSE 100 index was off 0.39 per cent, Frankfurt's DAX dipped 1.09 per cent and the Paris CAC 40 was down 1.16 per cent.