TSX closes lower amid worries that high oil prices could hurt economic recovery

TORONTO – The Toronto stock market closed lower Monday after a strong run-up in oil prices in recent months raised questions about the durability of the global economic recovery.

The S&P/TSX composite index lost 25.39 points to 12,700.38 with oil and mining stocks leading declines. The TSX Venture Exchange was down 10.02 points to 1,679.5.

The dip came after the TSX ended last week up 268.47 points or 2.14 per cent, leaving the main Toronto index up 6.44 per cent year to date, and analysts suggested the performance left indexes vulnerable to a bout of profit-taking.

“Equity markets have been on a very solid run here, not just in 2012 but since those October lows,” said Garey Aitken, director of equity research at Bissett Investment Management.

“So at any point in time I think some sort of giveback or correction was somewhat inevitable.”

The commodity-sensitive Canadian dollar turned higher as copper prices shook off early declines, rising 0.05 of a cent to 100.08 cents US.

New York and Toronto indexes also improved after data showed that the number of Americans who signed contracts to buy homes rose in January to the highest level in nearly two years, supporting the view that the housing market is gradually coming back.

The National Association of Realtors said its index of sales agreements rose two per cent last month to a reading of 97. A reading of 100 is considered healthy.

The Dow Jones industrials came back from a triple-digit decline and slipped 1.44 points to 12,981.51.

The Nasdaq composite index was ahead 2.41 points at 2,966.16 and the S&P 500 index added 1.85 points to 1,367.59.

The energy sector dropped 1.2 per cent as the April crude contract on the New York Mercantile Exchange fell $1.21 to US$108.56 a barrel. That is still a long way from US$96 where it started the month. Prices have surged primarily because of tensions with Iran over its nuclear program but also because of signs of stronger growth in the United States.

But worries have grown that the surge in prices could jeopardize the U.S. economic recovery and hurt corporate earnings while deepening a recession in Europe.

On the TSX, Suncor Energy (TSX:SU) gave back 81 cents to C$36.16 and Imperial Oil (TSX:IMO) fell 59 cents to $48.21.

Petrominerales (TSX:PMG) shares tumbled $4.65 or 19.62 per cent to $19.05 after the company reported a notable drop in its January production levels. The company said its production dropped seven per cent in January from the previous month due to natural declines in well output and two wells being off line.

The base metals sector lost 1.07 per cent, also down from early levels as copper prices made up early losses and closed up two cents at US$3.88 a pound. Prices rallied about four per cent last week, partly on signs that China could take further steps to loosen lending and encourage economic growth. China is the world’s biggest consumer of the metal, which is known as an economic bellwether as it is used in so many different businesses. Teck Resources (TSX:TCK.B) slipped 32 cents to C$40.34.

Ivanhoe Mines chief executive Robert Friedland said Monday that potential buyers are sniffing around the company’s assets. The company, which is developing the Oyu Tolgoi mine in Mongolia, said it has received detailed, written expressions of interest on potential asset sales that “could realize significant capital to support the ongoing development of Oyu Tolgoi.” Ivanhoe shares were off 11 cents to $17.41.

Bullion gave back $1.50 to US$1,774.90 an ounce while the gold sector lost about 0.8 per cent. Goldcorp Inc. (TSX:G) faded 29 cents to C$48.35 and Agnico Eagle Mines (TSX:AEM) fell 54 cents to $36.36.

The tech sector was also a drag with Research In Motion Ltd. (TSX:RIM) down 31 cents to $14.42.

The financials sector turned positive as most of the big Canadian banks deliver their latest quarterly earnings this week.

Bank of Montreal (TSX:BMO) is scheduled to post its earnings on Tuesday and its shares dipped nine cents to $58.01 while Sun Life Financial (TSX:SLF) gained 32 cents to $21.60. TD Bank (TSX:TD), Royal Bank (TSX:RY) and National Bank (TSX:NA) all report on Thursday.

National Bank shares were off four cents to $76.55 after announcing the sale of its asset management business, Natcan Investment Management Inc., to Fiera Sceptre Inc. (TSX:FSZ) for $309.5 million. Fiera shares jumped $1.30 or 18.06 per cent, to $8.50.

Buyers were also cautious after a meeting of G20 countries ended with the message that they won’t provide additional funding for the International Monetary Fund until the European Union first increases its financial stabilization funds. The G20 countries would require the EU to add about €500 billion in firewall funds before the rest of world considered contributing to the region’s stabilization effort.

“They turned it back to Europe to say, effectively, get your own house in order and build a firewall and we don’t need to support you right yet,” Aitken said.

On the earnings front, Valeant Pharmaceuticals International Inc. (TSX:VRX) shares gained $2.70 to $50.71 as quarterly profit at the specialty pharmaceutical company rose on acquisitions and strength in its dermatology business. Valeant posted a profit of $55.9 million compared with a loss of $31.1 million a year earlier. Revenue grew by 34 per cent to $688.5 million.