TSX closes down, traders mull weak Chinese data, effects of big U.S. budget cuts

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TMX Broadcast Centre display boards are pictured in Toronto on May 16, 2011. THE CANADIAN PRESS/Frank Gunn

TORONTO - A new round of worry about the Chinese economy and uncertainty about the impact of big U.S. government spending cuts pushed the Toronto stock market lower Monday.

The S&P/TSX composite index lost 65.71 points to 12,707.41, led by lower energy and mining stocks, while the TSX Venture Exchange was off 22.91 points to 1,097.17.

Expansion in China's services sector slowed last month to its lowest level since September. The non-manufacturing Purchasing Managers’ Index fell to 54.5 in February from 56.2 in January.

"(China) is not the only engine of global growth but it is a very, very important engine of global growth," observed Craig Fehr, Canadian markets specialist at Edward Jones in St. Louis.

Also depressing buying sentiment Monday was a move by the Chinese government to cool surging housing prices. The government said it will raise required minimum down payments in areas where prices are deemed to be rising too fast and crack down on efforts to evade limits on how many properties each buyer can acquire.

Any move to tighten China's economy is usually taken as a negative because the world's second biggest economy has played a huge role in helping the overall global economy recover from the 2008 financial collapse and subsequent recession.

The data and moves to dampen the housing market sent China's main Shanghai Composite tumbling 3.7 per cent in its worst percentage drop since August 2011.

The Canadian dollar moved down 0.06 of a cent to 97.3 cents US two days before the Bank of Canada makes its next announcement on interest rates. The bank could signal that interest rate hikes are even further down the road than thought because of persistent economic weakness.

The tepid pace of the economy was highlighted Friday when data showed fourth quarter growth came in at an annualized rate of 0.6 per cent, with growth actually contracting during December.

In New York, where indexes aren't nearly so resource dominated, stocks advanced despite concerns that the US$85 billion in across-the-board cuts that went into effect Friday could slow the economic recovery.

The Dow Jones industrials gained 38.16 points to 14,127.82, the Nasdaq was up 12.29 points to 3,182.03 while the S&P 500 index edged up seven points to 1,525.2.

Both Democrats and Republicans cast blame on the other for the cuts, known as the sequestration. Republicans insist there can be no new taxes and Democrats refuse to talk about any bargain without them.

"The reality is, sequestration represents a hatchet and one would have liked to see something more delicate," Fehr said.

"We think you have to raise taxes and you have to cut spending and both of those need to happen over a protracted period of time and need to be logical and at the end of the day that’s the only way the fiscal situation in the U.S. will ultimately be fixed."

Commodity prices were weak on top of losses on Friday.

Miners led TSX declines, with the base metals component down 2.7 per cent as May copper gave up early gains in the wake of the Chinese data and was unchanged at US$3.50. China is the world's biggest consumer of copper. Teck Resources (TSX:TCK.B) declined 86 cents to $30.25.

There was also major acquisition activity in the resource sector.

Aurizon Mines Ltd. (TSX:ARZ) has received a friendly $796-million takeover offer from U.S.-based silver, gold and metals producer Hecla Mining Co. Hecla’s offer values the Vancouver-based miner at C$4.75 per share, 40 cents per share above Aurizon’s closing stock price on Friday. Aurizon shares gained 14 cents to $4.49.

The gold sector also fell about 2.7 per cent as April bullion inched up a dime to US$1,572.40 an ounce. Barrick Gold Corp. (TSX:ABX) was down 81 cents to $29.29.

The energy sector was down 1.23 per cent while worries about demand from China helped push the April crude contract on the New York Mercantile Exchange down 56 cents to US$90.12 a barrel, its lowest close this year. Canadian Natural Resources (TSX:CNQ) dropped 79 cents to $31.26.

Gains were led by the industrials sector, rising 0.53 per cent with Canadian National Railways (TSX:CNR) up $1.70 to $105.57.

In other corporate developments, Bank of Montreal was off 18 cents to $46.75 after it lowered its posted rate for a five-year fixed mortgage to 2.99 per cent from the current 3.09 per cent. The move prior to the major spring buying season comes after Canada Mortgage and Housing Corp. warned of a slowdown in the housing sector, saying new housing construction is expected to be lower this year due to moderate economic and employment growth.

U.S. discount giant Target (NYSE:TGT) is set to open its first stores in Canada on Tuesday. Target Canada president Tony Fisher made the announcement today during a media tour of the retailer’s Guelph store in southwestern Ontario. The Minneapolis-based retailer is expected to open between 125 and 135 locations in Canada in spaces that were once owned by Zellers. Its shares closed up $2.31 to US$66.44.