TSX retreats as energy stocks give up ground;lower oil supports NY

7 minutes ago

TORONTO — The Toronto stock market was down sharply mid-afternoon Friday as commodity stocks retreated after two days of strong gains.

The energy sector was the biggest decliner as crude oil backed off from Thursday's big runup.

The drop in crude, combined with hopes that investment bank Lehman Brothers will be sold, helped send New York markets higher.

Toronto's S&P/TSX composite index moved down 159.19 points to 13,380.03 after a burst of higher oil prices helped send the main index up almost 500 points in the previous two sessions.

Julie Brough, vice-president at Morgan, Meighen and Associates, says the higher runup in oil prices earlier in the week followed a "pretty serious" decline before that.

"You do tend to get a bounce off the bottom of those - and that's what we're seeing," Brough said.

The TSX Venture Exchange eased 2.22 points to 1,947.46 while the Canadian dollar was off 0.06 cent to 95.73 cents US.

New York's Dow Jones industrial average gained 179.29 points to 11,609.5.

The Nasdaq composite index moved up 29.67 points to 2,410.05 while the S&P 500 index rose 11.94 points to 1,289.66.

Investors were focused on the financial sector after The Globe and Mail cited a Royal Bank of Canada (TSX:RY) memo to brokers that it is in settlement talks with U.S. regulators over its role in the troubled market for auction-rate securities.

The market for these securities, whose rates were reset at periodic auctions, collapsed in February.

New York Attorney-General Andrew Cuomo has already forced seven other global banks to buy back almost $50-billion worth of auction-rate securities from small investors and pay $360-million in fines.

Royal shares were ahead 27 cents to $45.55.

Also, CI Financial Income Fund (TSX:CIX.UN) confirmed it has had discussions with a number of parties concerning possible strategic combinations involving CI and its subsidiaries. The investment management firm says there is no certainty that any transaction will be completed and CI will not comment further on rumours and speculation. Its shares ran ahead $1.07 to $22.04.

Overall, the TSX financial sector rose 0.6 per cent. Other advancers included CIBC (TSX:CM), ahead 68 cents to $59.11.

Elsewhere in the financial sector, investors were digesting a media report that Korea Development Bank is considering buying investment bank Lehman Brothers. Its shares surged $1.79 or 13 per cent to US$15.51.

"If JPMorgan can get Bear Stearns for US$10 (a share), who says (the Korean bank) can't get Lehman Brothers at a crazy discount?" added Brough.

"And I don't think you'll get any of the (American) banks to step up and put a lot of capital for these things."

The Toronto energy sector fell 2.75 per cent as the price of oil moderated after a weak U.S. dollar sent prices over the US$121-a barrel mark. On Friday, the October crude contract on the New York Mercantile Exchange moved down $4.67 to US$116.51 a barrel.

Canadian Natural Resources (TSX:CNQ) moved down $3.46 to US$86.01 and EnCana Corp. (TSX:ECA) gave back $2.33 to $75.23.

The gold sector moved down three per cent as the December bullion contract in New York declined $6.30 to US$832.70. Goldcorp Inc. (TSX:G) lost $1.26 to $35.25

Shares in gold miner Crystallex International Corp. (TSX:KRY) switched direction to move down five cents to $1.17 even after it received some positive news on its proposed Las Cristinas project in Venezuela. It says that country's environment ministry has told the company that a report submitted on modifications to the project "are viable and conform to the Environmental and Social guidelines of the Venezuelan Government."

Investors also took in a speech from U.S. Federal Reserve chairman Ben Bernanke, who warned that the financial crisis is taking a toll on the economy.

Bernanke acknowledged during a speech at an economics conference that the current financial and economic environment is one of the most challenging to Fed policymakers "in memory."

The Fed chairman added that the central bank would monitor the situation closely and will "act as necessary" to make sure that inflation doesn't get out of hand.

In other corporate news, Russian conglomerate OAO Severstal (LSE:SVS) plans to acquire a US$1.3-billion Pennsylvania coal business through a transaction that involves the purchase of a Canadian-listed corporation.

Severstal Resources is offering C$8.30 per share for Penfold Capital Acquisition Corp. (TSXV: PNA.P), in order to acquire PBS Coals Corp, a private company registered in British Columbia which mines metallurgical and thermal coal in Pennsylvania. Penfold hasn't traded since May 14 and its stock is worth 21 cents.

Shares in Maple Leaf Foods (TSX:MFI) fell another 40 cents to $9.87 as an outbreak of the disease caused by Listeria monocytogenes continues to be investigation. The outbreak has prompted the recall of 23 meat products by Maple Leaf Foods. Officials have yet to establish a link between the outbreak and the food produced at the company's meat plant in Toronto.

So far, the infection has sickened 16 people and killed one.